Week 5 CREDIT TRANSACTION - Warehouse Receipts Aw

CREDIT TRANSACTION: Compilation of
Cases
G.R. No. L-17825
June 26, 1922
In the matter of the Involuntary insolvency of U. DE POLI.

FELISA ROMAN, claimant-appellee,
vs.
ASIA BANKING CORPORATION, claimant-appellant.
Wolfson, Wolfson and Schwarzkopf and Gibbs, McDonough & Johnson for appellant.
Antonio V. Herrero for appellee.
OSTRAND, J.:
This is an appeal from an order entered by the Court of First Instance of Manila in civil No.
19240, the insolvency of Umberto de Poli, and declaring the lien claimed by the appellee
Felisa Roman upon a lot of leaf tobacco, consisting of 576 bales, and found in the possession
of said insolvent, superior to that claimed by the appellant, the Asia Banking Corporation.
The order appealed from is based upon the following stipulation of facts:
It is hereby stipulated and agreed by and between Felisa Roman and Asia Banking
Corporation, and on their behalf by their undersigned attorneys, that their respective
rights, in relation to the 576 bultos of tobacco mentioned in the order of this court
dated April 25, 1921, be, and hereby are, submitted to the court for decision upon
the following:
I. Felisa Roman claims the 576 bultos of tobacco under and by virtue of the
instrument, a copy of which is hereto attached and made a part hereof and marked
Exhibit A.
II. That on November 25, 1920, said Felisa Roman notified the said Asia Banking
Corporation of her contention, a copy of which notification is hereto attached and
made a part hereof and marked Exhibit B.
III. That on November 29, 1920, said Asia Banking Corporation replied as per copy
hereto attached and marked Exhibit C.
IV. That at the time the above entitled insolvency proceedings were filed the 576
bultos of tobacco were in possession of U. de Poli and now are in possession of the
assignee.
V. That on November 18, 1920, U. de Poli, for value received, issued a quedan,
covering aforesaid 576 bultos of tobacco, to the Asia Banking Corporation as per copy
of quedan attached and marked Exhibit D.
VI. That aforesaid 576 bultos of tobacco are part and parcel of the 2,777 bultos
purchased by U. de Poli from Felisa Roman.
VII. The parties further stipulate and agree that any further evidence that either of
the parties desire to submit shall be taken into consideration together with this
stipulation.
Manila, P. I., April 28, 1921.
(Sgd.) ANTONIO V. HERRERO
Attorney for Felisa Roman
1 Warehouse Receipt Law Cases

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(Sgd.) WOLFSON, WOLFSON & SCHWARZKOPF
Attorney for Asia Banking Corp.
Exhibit A referred to in the foregoing stipulation reads:
1. Que la primera parte es duea de unos dos mil quinientos a tres mil quintales de
tacabo de distintas clases, producidos en los municipios de San Isidro, Kabiaw y
Gapan adquiridos por compra con dinero perteneciente a sus bienes parafernales, de
los cuales es ella administradora.
2. Que ha convenido la venta de dichos dos mil quinientos a tres mil quintales de
tabaco mencionada con la Segunda Parte, cuya compraventa se regira por las
condiciones siguientes:
(a) La Primera Parte remitira a la Segunda debidamente enfardado el tabaco de que
ella es propietaria en bultos no menores de cincuenta kilos, siendo de cuenta de
dicha Primera Parte todos los gastos que origine dicha mercancja hasta la estacion de
ferrocarril de Tutuban, en cuyo lugar se hara cargo la Segunda y desde cuyo instante
seran de cuenta de esta los riesgos de la mercancia.
(b) El precio en que la Primera Parte vende a la Segunda el tabaco mencionada es el
de veintiseis pesos (P26), moneda filipina, por quintal, pagaderos en la forma que
despues se establece.
(c) La Segunda Parte sera la consignataria del tabaco en esta Ciudad de Manila quien
se hara cargo de el cuando reciba la factura de embarque y la guia de Rentas
Internas, trasladandolo a su bodega quedando en la misma en calidad de deposito
hasta la fecha en que dicha Segunda Parte pague el precio del mismo, siendo de
cuenta de dicha Segunda Parte el pago de almacenaje y seguro.
(d) LLegada la ultima expedicion del tabaco, se procedera a pesar el mismo con
intervencion de la Primera Parte o de un agente de ella, y conocido el numero total
de quintales remitidos, se hara liquidacion del precio a cuenta del cual se pagaran
quince mil pesos (P15,000), y el resto se dividira en cuatro pagares vencederos cada
uno de ellos treinta dias despues del anterior pago; esto es, el primer pagare vencera
a los treinta dias de la fecha en que se hayan pagado los quince mil pesos, el
segundo a igual tiempo del anterior pago, y asi sucesivamente; conviniendose que el
capital debido como precio del tabaco devengara un interes del diez por ciento anual.
Los plazos concedidos al comprador para el pago del precio quedan sujetos a la
condicion resolutoria de que si antes del vencimiento de cualquier plazo, el
comprador vendiese parte del tabaco en proporcion al importe de cualquiera de los
pagares que restasen por vencer, o caso de que vendiese, pues se conviene para
este caso que desde el momento en que la Segunda Parte venda el tabaco, el
deposito del mismo, como garantia del pago del precio, queda cancelado y
simultaneamente es exigible el importe de la parte por pagar.
Leido este documento por los otorgantes y encontrandolo conforme con lo por ellos
convenido, lo firman la Primera Parte en el lugar de su residencia, San Isidro de
Nueva Ecija, y la Segunda en esta Ciudad de Manila, en las fechas que
respectivamente al pie de este documento aparecen.
(Fdos.) FELISA ROMAN VDA. DE MORENO
U. DE POLI
Firmado en presencia de:

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(Fdos.) ANTONIO V. HERRERO
T. BARRETTO
("Acknowledged before Notary")
Exhibit D is a warehouse receipt issued by the warehouse of U. de Poli for 576 bales of
tobacco. The first paragraph of the receipt reads as follows:
Quedan depositados en estos almacenes por orden del Sr. U. de Poli la cantidad de
quinientos setenta y seis fardos de tabaco en rama segun marcas detalladas al
margen, y con arreglo a las condiciones siguientes:
In the left margin of the face of the receipts, U. de Poli certifies that he is the sole owner of
the merchandise therein described. The receipt is endorced in blank "Umberto de Poli;" it is
not marked "non-negotiable" or "not negotiable."
Exhibit B and C referred to in the stipulation are not material to the issues and do not appear
in the printed record.
Though Exhibit A in its paragraph (c) states that the tobacco should remain in the warehouse
of U. de Poli as a deposit until the price was paid, it appears clearly from the language of the
exhibit as a whole that it evidences a contract of sale and the recitals in order of the Court of
First Instance, dated January 18, 1921, which form part of the printed record, show that De
Poli received from Felisa Roman, under this contract, 2,777 bales of tobacco of the total
value of P78,815.69, of which he paid P15,000 in cash and executed four notes of
P15,953.92 each for the balance. The sale having been thus consummated, the only lien
upon the tobacco which Felisa Roman can claim is a vendor's lien.
The order appealed from is based upon the theory that the tobacco was transferred to the
Asia Banking Corporation as security for a loan and that as the transfer neither fulfilled the
requirements of the Civil Code for a pledge nor constituted a chattel mortgage under Act No.
1508, the vendor's lien of Felisa Roman should be accorded preference over it.
It is quite evident that the court below failed to take into consideration the provisions of
section 49 of Act No. 2137 which reads:
Where a negotiable receipts 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.
The term "purchaser" as used in the section quoted, includes mortgagee and pledgee. (See
section 58 (a) of the same Act.)
In view of the foregoing provisions, there can be no doubt whatever that if the warehouse
receipt in question is negotiable, the vendor's lien of Felisa Roman cannot prevail against the
rights of the Asia Banking Corporation as the indorse of the receipt. The only question of
importance to be determined in this case is, therefore, whether the receipt before us is
negotiable.
The matter is not entirely free from doubt. The receipt is not perfect: It recites that the
merchandise is deposited in the warehouse "por orden" instead of "a la orden" or "sujeto a la
orden" of the depositor and it contain no other direct statement showing whether the goods

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received are to be delivered to the bearer, to a specified person, or to a specified person or
his order.
We think, however, that it must be considered a negotiable receipt. A warehouse receipt, like
any other document, must be interpreted according to its evident intent (Civil Code, arts.
1281 et seq.) and it is quite obvious that the deposit evidenced by the receipt in this case
was intended to be made subject to the order of the depositor and therefore negotiable.
That the words "por orden" are used instead of "a la orden" is very evidently merely a
clerical or grammatical error. If any intelligent meaning is to be attacked to the phrase
"Quedan depositados en estos almacenes por orden del Sr. U. de Poli" it must be held to
mean "Quedan depositados en estos almacenes a la orden del Sr. U. de Poli." The phrase
must be construed to mean that U. de Poli was the person authorized to endorse and deliver
the receipts; any other interpretation would mean that no one had such power and the
clause, as well as the entire receipts, would be rendered nugatory.
Moreover, the endorsement in blank of the receipt in controversy together with its delivery
by U. de Poli to the appellant bank took place on the very of the issuance of the warehouse
receipt, thereby immediately demonstrating the intention of U. de Poli and of the appellant
bank, by the employment of the phrase "por orden del Sr. U. de Poli" to make the receipt
negotiable and subject to the very transfer which he then and there made by such
endorsement in blank and delivery of the receipt to the blank.
As hereinbefore stated, the receipt was not marked "non-negotiable." Under modern
statutes the negotiability of warehouse receipts has been enlarged, the statutes having the
effect of making such receipts negotiable unless marked "non-negotiable." (27 R. C. L., 967
and cases cited.)
Section 7 of the Uniform Warehouse Receipts Act, says:
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
acknowledgments of an informal character.
This section appears to give any warehouse receipt not marked "non-negotiable" or "not
negotiable" practically the same effect as a receipt which, by its terms, is negotiable
provided the holder of such unmarked receipt acquired it for value supposing it to be
negotiable, circumstances which admittedly exist in the present case.
We therefore hold that the warehouse receipts in controversy was negotiable and that the
rights of the endorsee thereof, the appellant, are superior to the vendor's lien of the
appellee and should be given preference over the latter.
The order appealed from is therefore reversed without costs. So ordered.
Araullo, C.J., Malcolm, Avancea, Villamor, Johns and Romualdez, JJ., concur.

Cases
G.R. No. L-4080
September 21, 1953
JOSE P. MARTINEZ, as administrator of the Instate Estate of Pedro Rodriguez,

deceased, plaintiff-appellant,
vs.
PHILIPPINE NATIONAL BANK, defendant-appellee.
Delgado, Flores, & Macapagal for appellant.
Ramon B. de los Reyes and Angel G. Ilagan for appellee.
MONTEMAYOR, J.:
As of February 1942, the estate of Pedro Rodriguez was indebted to the defendant Philippine
National Bank in the amount of P22,128.44 which represented the balance of the crop loan
obtained by the estate upon its 1941-1942 sugar cane crop. Sometime in February 1942,
Mrs. Amparo R. Martinez, late administratrix of the estate upon request of the defendant
bank through its Cebu branch endorsed and delivered to the said bank two (2) quedans
according to plaintiff-appellant issued by the Bogo-Medellin Milling co. where the sugar was

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stored covering 2,198.11 piculs of sugar belonging to the estate, although according to the
defendant-appellee, only one quedan covering 1,071.04 piculs of sugar was endorsed and
delivered. During the last Pacific war, sometime in 1943, the sugar covered by the quedan or
quedans was lost while in the warehouse of the Bogo-Medellin Milling Co. In the year 1948,
the indebtedness of the estate including interest was paid to the bank, according to the
appellant, upon the insistence of land pressure brought to bear by the bank.
Under the theory and claim the sometime in February 1942, when the invasion of the
Province of Cebu by the Japanese Armed Forces was imminent, the administratrix of the
estate asked the bank to release the sugar so that it could be sold at a god price which was
about P25 per picul in order to avoid its possible loss due to the invasion, but that the bank
refused that request and as a result the amount of P54,952.75 representing the value of said
sugar was lost, the present action was brought against the defendant bank to recover said
amount. After trial, the Court of First Instance of Manila dismissed the complaint on the
ground that the transfer of the quedan or quedans representing the sugar in the warehouse
of the Bogo-Medellin Milling Co. to the bank did not transfer ownership of the sugar, and
consequently, the loss of said sugar should be borne by the plaintiff appellant. administrator
Jose R. Martinez is now appealing from that decision.
We agree with the trial court that at the time of the loss of the sugar during the war,
sometime in 1943, said sugar still belonged to the estate of Pedro Rodriguez. It had never
been sold to the bank so as to make the latter owner thereof. The transaction could not have
been a sale, first, because one of the essential elements of the contract of sale, namely,
consideration was not present. If the sugar was sold, what was the price? We do not know,
for nothing was said about it. Second, the bank by its charter is not authorized to engage in
the business of buying and selling sugar. It only accepts sugar as security for payment of its
crop loans and later on pursuant to an understanding with the sugar planters, it sell said
sugar for them, or the planters find buyers and direct them to the bank. The sugar was given
only as a security for the payment of the crop loan. This is admitted by the appellant as
shown by the allegations in its complaint filed before the trial court and also in the brief for
appellant filed before us. According to law, the mortgagee or pledge cannot become the
owner of or convert and appropriate to himself the property mortgaged r pledged (Article
1859, old Civil Code; Article 2088, new Civil code). Said property continues t belong to the
mortgagor or pledgor. The only remedy given to the mortgagee or pledgee is to have said
property sold at public auction and the proceeds of the sale applied to the payment of the
obligation secured by the mortgage or pledge.
The position and claim of plaintiff-appellant is rather inconsistent and confusing. First, he
contends that the endorsement and delivery of the quedan or quedans to the bank
transferred the ownership of the sugar to said bank so that as owner, the bank should suffer
the loss of the sugar on the principle that "a thing perishes for the owner". We take it that by
endorsing the quedan, defendant was supposed to have sold the sugar to the bank for the
amount of the outstanding loan of P22,128.44 and the interest then occured. That would
mean that plaintiff's account with the bank has been entirely liquidated and their contractual
relations ended, the bank suffering the loss of the amount of the loan and interest But
plaintiff-appellant in the next breath contends that had the bank released the sugar in
February 1942, plaintiff ]could have sold it for P54,952.75, from which the amount of the
loan and interest could have been deducted, the balance to have been retained by plaintiff,
and that since the loan has been entirely liquidated in 1948, then the whole expected sale
price of P54,952.75 should now be paid by the bank to appellant. This second theory
presupposes that despite the indorsement of the quedan plaintiff still retained ownership of
the sugar, a position that runs counter to the first theory of transfer of ownership to the
bank.
In the course of the discussion of this case among the members of the Tribunal, one or two
them who will dissent from the majority view sought to cure and remedy this apparent
inconsistency in the claim of appellant and sustain the theory that the endorsement of the
quedan made the bank the owner of the sugar resulting in the payment of the loan, so that
now, the bank should return to appellant the amount of the loan it improperly collected in
1948.
In support of the theory of transfer of ownership of the sugar to the bank by virtue of the
endorsement of the quedan, reference was made to the Warehouse Receipts Law,
particularly section 41 thereof, and several cases decided by this court are cited. In the first

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place, this claim is inconsistent with the very theory of plaintiff appellant that the sugar far
from being sold to the bank was merely given as security for the payment of the crop loan.
In the second place, the authorities cited have not directly applicable. In those cases this
court held that for purposes of facilitating commercial transaction, the endorse of transferee
of a warehouse receipt or quedan should be regarded as the owner of the goods covered by
it. In other words, as regards the endoser or transferor, even if he were the owner of the
goods, he may not take possession and dispose of the goods without the consent of the
endorse or transferee of the quedan or warehouse receipt; that in some cases the endorse of
a quedan may sell the goods and apply the proceeds of the sale to the payment of the debt;
and as regards third persons, the holder of a warehouse receipt or quedan is considered the
owner of the goods covered by it. To make clear the view of this court in said court in two of
these cases cited which are typical.
As to the first of action, we hold that in January, 1919, the bank became and
remained the owner of the five quedans Nos. 30, 35, 38, 41, and 42; that they were
in form negotiable, and that, as such owner, it was legally entitled to the possession
and control of the property therein described at the time the insolvency petition was
filed and had a right to sell it and apply the proceeds of the sale to its promissory
notes, cured by the three quedans Nos. 33, 36, and 39, which the bank surrendered
to the firm. (Philippine Trust Co. vs. National Bank, 42 Phil., 413, 427).
... Section 58 provides that within the meaning of the Act "to "purchase" includes to
take as mortgagee or pledgee' and clear that, as to the legal title to the property
covered by a warehouse receipt, a pledgee is on the same footing as a vendee
except that the former is under the obligation of surrendering his title upon the
payment of the debt secured. To hold otherwise would defeat one of the principal
purposes of the Act, i. e., to furnish a basis for commercial credit. (Bank of the
Philippine Islands vs. Herridge, 47 Phil. 57, 70).
It is obvious that where the transaction involved in the transfer of a warehouse receipt or
quedan is not a sale but pledge or security, the transferee or endorsee does not become the
owner of the goods but that he may only have the property sold then satisfy the obligation
from the proceeds of the sale. From all this, it is clear that at the time the sugar in question
was lost sometime during the war, estate of Pedro Rodriguez was still the owner thereof.
It is further contended in this appeal that the defendant appellee failed to excercise due care
for the preservation of the sugar, and that the loss was due to its negligence as a result of
which the appellee incurred the loss. In the first place, this question was not raised in the
court below. Plaintiff's complaint to make any allegation regarding negligence in the
preservation of this sugar. In the second place, it is a fact that the sugar was lost in the
possession of the warehouse selected by the appellant to which it had originally delivered
and stored it, and for causes beyond the bank's control, namely, the war.
In connection with the claim that had the released the sugar sometime in February, 1942,
when requested by the plaintiff, said sugar could have been sold at the rate of P25 a picul or
a total of P54,952.75, the amount of the present claim, there is evidence to show that the
request for release was not made to the bank itself but directly to the official of the
warehouse the Bogo Medellin Milling Co. and that bank was not aware of any such request,
but that therefore April 9, 1942, when the Cebu branch of the defendant was closed, the
bank through its officials offered the sugar for sale but that there were no buyers, perhaps
due to the unsettled and chaotic conditions that obtaining by reason of the enemy
occupation.
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 covered by the quedans of warehouse receipts is
lost without the fault or negligence of the mortgagee or pledgee or quedan, then said goods
are to be regarded as lost on account of the real owner, mortgagor or pledgor.1wphl.nt
In view of the foregoing, the decision appealed from is hereby affirmed, with costs.

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Bengzon, Padilla, Tuason, Reyes, Jugo, Bautista Angelo, and Labrador, JJ., concur.
Separate Opinions
PARAS, C. J., dissenting:
The plaintiff seeks to recover from the defendant Philippine National Bank the sum of
P54,952.75, representing the value of 2,198.11 piculs of sugar covered by two quedans
indorsed and delivered to the bank by the administratix of the estate of the deceased Pedro
Rodriguez to secure the indebtedness of the latter in the amount of P22,128.44. It is alleged
that when the two quedans were indorsed and delivered to the defendant bank in or about
January, 1942, the sugar was in deposit at the Bogo-Medellin Sugar Co., Inc.; that said sugar
was lost during the war; that the indebtedness of P22,128.44 was liquidated in 1948 by the
estate of the deceased Pedro Rodriguez and that, notwithstanding demands, the defendant
bank refused to credit the plaintiff with the value of the sugar lost.
There is no question as to the existence of the sugar covered by the two quedans, or as to
the indorsement and delivery of said quedans to the defendant bank. The Court of First
Instance of Manila which decided against the plaintiff and held that the defendant bank is
not liable for the loss of the sugar in question, indeed stated that the only question that
arises is whether the indorsement of the warehouse receipts transferred the ownership f the
sugar to the defendant bank; that if it did, the bank should suffer the loss, but if it did not,
the loss should be for the account of the estate of the deceased Pedro Rodriguez. In
dismissing the plaintiff's action, the trial court held that the indorsement of the quedans to
the defendant bank did not carry with it the transfer of ownership of the sugar, as the
indorsement and delivery were effected merely secure the payment of an indebtedness, to
facilitate the sale of the sugar, and to prevent the debtor from disposing of it without the
knowledge and consent of the defendant bank. The plaintiff has appealed.
The applicable legal provision is section 41 of Act No. 2137, otherwise as the Warehouse
Receipts Law, which reads as follows:
SEC. 41. Rights of person to whom a receipt has been negotiated. A person to
whom a negotiable receipt has been duly negotiated acquires thereby:
(a) Such title to the goods as the person negotiating the receipt to him had or had
ability to convey to a purchaser in good faith for value, and also such to the goods as
the depositor or person to whose order the goods were to be delivered by the terms
of the receipt had or had ability to convey to a purchaser in good faith for value, and
(b) The direct obligation of the warehouseman to hold possession of the goods for
him according to the terms of the receipt as fully as if the warehouseman had
contracted directly with him.
This provision plainly states that a person to whom a negotiable receipt (such as the sugar
quedans in question) has been negotiated title to the goods covered by the receipt, as well
as the possession of the goods through the warehouseman, as if the latter had contracted
directly with the person to whom the negotiable receipt has been duly negotiated.
Consequently, the defendant bank to whom the two quedans in question have been
indorsed and delivered, thereby acquired the ownership of the sugar covered by said
quedans, with the logical result that the loss of the article should be borne by the defendant
bank. The fact that the quedans were indorsed and delivered as a security for the payment
of an indebtedness did not prevent the bank from acquiring ownership, since the only effect
of the transfer was that the debtor could reacquire said ownership upon payment of his
obligation. Section 41 of Act No. 2137 had already been construed by this court in the sense
that ownership and delivered merely as security. (Sy Cong Being vs. Hongkong & Shanghai
Bank, 56 Phil., 498; Philippine Trust co. vs. Philippine National Bank, 42 Phil., 438; Bank of
the Philippine Islands vs. Herridge, 47 Phil., 57; Roman vs. Asis Banking Corporation, 46 Phil.,
405).

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The relation of a pledgor of a warehouse receipt duly indorsed and delivered to the pledge,
is substantially right of repurchase. The vendor a retro actually transfers the ownership of
the property sold to the vendee, but the former may reacquire said ownership upon
payment is lost before being repurchased, the vendee naturally has to bear the loss, with
the vendor having nothing to repurhase. But if the loss should occur after the repurchase
price has been paid but before the property sold a retro is actually reconveyed, the vendee
is bound to return to the vendor only the repurchase price paid, and not the value of the
property. In my opinion, therefore, the loss of the sugar should be for the account of the
defendant bank, which should return to the plaintiff P22,128.44, the amount of the
indebtedness of the estate of the deceased Pedro Rodriguez which had already been paid
1948, without however being liable for the difference between P54,952.75 (actual value of
the sugar) and the amount of said payment.
The appealed judgment should therefore be reversed and the defendant bank sentenced to
pay to the plaintiff the sum of P22,128.44.
Pablo, J., concurs.

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G.R. No. 129918 July 9, 1998

PHILIPPINE NATIONAL BANK, petitioner,
vs.
HON. MARCELINO L. SAYO, JR., in his capacity as Presiding Judge of the Regional
Trial Court of Manila (Branch 45), NOAH'S ARK SUGAR REFINERY, ALBERTO T.
LOOYUKO, JIMMY T. GO and WILSON T. GO, respondents.
DAVIDE, JR., J.:

In this special civil action for certiorari, actually the third dispute between the same private
parties to have reached this Court, 1 petitioner asks us to annul the orders 2 of 15 April 1997
and 14 July 1997 issued in Civil Case No. 90-53023 by the Regional Trial Court, Manila,
Branch 45. The first order 3 granted private respondents' motion for execution to satisfy their
warehouseman's lien against petitioner, while the second order 4 denied, with finality,
petitioner's motion for reconsideration of the first order and urgent motion to lift
garnishment, and private respondents' motion for partial reconsideration.
The factual antecedents until the commencement of G.R. No. 119231 were summarized in
our decision therein, as follows:
In accordance with Act No. 2137, the Warehouse Receipts Law, Noah's Ark
Sugar Refinery issued on several dates, the following Warehouse Receipts
(Quedans): (a) March 1, 1989, Receipt No. 18062, covering sugar deposited by
Rosa Sy; (b) March 7, 1989, Receipt No. 18080, covering sugar deposited by
RNS Merchandising (Rosa Ng Sy); (c) March 21, 1989, Receipt No. 18081,
covering sugar deposited by St. Therese Merchandising; (d) March 31, 1989,
Receipt No. 18086, covering sugar deposited by St. Therese Merchandising;
and (e) April 1, 1989, Receipt No. 18087, covering sugar deposited by RNS
Merchandising. The receipts are substantially in the form, and contains the
terms, prescribed for negotiable warehouse receipts by Section 2 of the law.
Subsequently, Warehouse Receipts Nos. 18080 and 18081 were negotiated
and endorsed to Luis T. Ramos, and Receipts Nos. 18086, 18087 and 18062
were negotiated and endorsed to Cresencia K. Zoleta. Ramos and Zoleta then
used the quedans as security for two loan agreements one for P15.6 million
and the other for P23.5 million obtained by them from the Philippine
National Bank. The aforementioned quedans were endorsed by them to the
Philippine National Bank.

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Luis T. Ramos and Cresencia K. Zoleta failed to pay their loans upon maturity
on January 9, 1990. Consequently, on March 16, 1990, the Philippine National
Bank wrote to Noah's Ark Sugar Refinery demanding delivery of the sugar
stocks covered by the quedans endorsed to it by Zoleta and Ramos. Noah's
Ark Sugar Refinery refused to comply with the demand alleging ownership
thereof, for which reason the Philippine National Bank filed with the Regional
Trial Court of Manila a verified complaint for "Specific Performance with
Damages and Application for Writ of Attachment" against Noah's Ark Sugar
Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, the last three
being identified as the sole proprietor, managing partner, and Executive Vice
President of Noah's Ark, respectively.
Respondent Judge Benito C. Se, Jr., [to] whose sala the case was raffled,
denied the Application for Preliminary Attachment. Reconsideration therefor
was likewise denied.
Noah's Ark and its co-defendants filed an Answer with Counterclaim and ThirdParty Complaint in which they claimed that they [were] the owners of the
subject quedans and the sugar represented therein, averring as they did that:
9. * * * In an agreement dated April 1, 1989, defendants agreed
to sell to Rosa Ng Sy of RNS Merchandising and Teresita Ng of
St. Therese Merchandising the total volume of sugar indicated
in the quedans stored at Noah's Ark Sugar Refinery for a total
consideration of P63,000,000.00, * * * The corresponding
payments in the form of checks issued by the vendees in favor
of defendants were subsequently dishonored by the drawee
banks by reason of "payment stopped" and "drawn against
insufficient funds," * * * Upon proper notification to said
vendees and plaintiff in due course, defendants refused to
deliver to vendees therein the quantity of sugar covered by the
subject quedans.
10. * * * Considering that the vendees and first endorsers of
subject quedans did not acquire ownership thereof, the
subsequent endorsers and plaintiff itself did not acquire a better
right of ownership than the original vendees/first endorsers.
The Answer incorporated a Third-Party Complaint by Alberto T. Looyuko, Jimmy
T. Go and Wilson T. Go, doing business under the trade name and style Noah's
Ark Sugar Refinery against Rosa Ng Sy and Teresita Ng, praying that the latter
be ordered to deliver or return to them the quedans (previously endorsed to
PNB and the subject of the suit) and pay damages and litigation expenses.
The Answer of Rosa Ng Sy and Teresita Ng, dated September 6, 1990, one of
avoidance, is essentially to the effect that the transaction between them, on
the one hand, and Jimmy T. Go, on the other, concerning the quedans and the
sugar stocks covered by them was merely a simulated one being part of the
latter's complex banking schemes and financial maneuvers, and thus, they
are not answerable in damages to him.
On January 31, 1991, the Philippine National Bank filed a Motion for Summary
Judgment in favor of the plaintiff as against the defendants for the reliefs
prayed for in the complaint.

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On May 2, 1991, the Regional Trial Court issued an order denying the Motion
for Summary Judgment. Thereupon, the Philippine National Bank filed a
Petition for Certiorari with the Court of Appeals, docketed as CA-G.R. SP No.
25938 on December 13, 1997.
Pertinent portions of the decision of the Court of Appeals read:
In issuing the questioned Orders, the respondent Court ruled
that "questions of law should be resolved after and not before,
the questions of fact are properly litigated." A scrutiny of
defendant's affirmative defenses does not show material
questions of fact as to the alleged nonpayment of purchase
price by the vendees/first endorsers, and which nonpayment is
not disputed by PNB as it does not materially affect PNB's title
to the sugar stocks as holder of the negotiable quedans.
What is determinative of the propriety of summary judgment is
not the existence of conflicting claims from prior parties but
whether from an examination of the pleadings, depositions,
admissions and documents on file, the defenses as to the main
issue do not tender material questions of fact (see Garcia vs.
Court of Appeals, 167 SCRA 815) or the issues thus tendered
are in fact sham, fictitious, contrived, set up in bad faith or so
unsubstantial as not to constitute genuine issues for trial. (See
Vergara vs. Suelto, et al., 156 SCRA 753; Mercado, et al. vs.
Court of Appeals, 162 SCRA 75). [sic] The questioned Orders
themselves do not specify what material facts are in issue. (See
Sec. 4, Rule 34, Rules of Court).
To require a trial notwithstanding pertinent allegations of the
pleadings and other facts appearing on the record, would
constitute a waste of time and an injustice to the PNB whose
rights to relief to which it is plainly entitled would be further
delayed to its prejudice.
In issuing the questioned Orders, We find the respondent Court
to have acted in grave abuse of discretion which justify holding
null and void and setting aside the Orders dated May 2 and July
4, 1990 of respondent Court, and that a summary judgment be
rendered forthwith in favor of the PNB against Noah's Ark Sugar
Refinery, et al., as prayed for in petitioner's Motion for Summary
Judgment.
On December 13, 1991, the Court of Appeals nullified and set aside the orders
of May 2 and July 4, 1990 of the Regional Trial Court and ordered the trial
court to render summary judgment in favor of the PNB. On June 18, 1992, the
trial court rendered judgment dismissing plaintiffs complaint against private
respondents for lack of cause of action and likewise dismissed private
respondent's counterclaim against PNB and of the Third-Party Complaint and
the Third-Party Defendant's Counterclaim. On September 4, 1992, the trial
court denied PNB's Motion for Reconsideration.
On June 9, 1992, the PNB filed an appeal from the RTC decision with the
Supreme Court, G.R. No. 107243, by way of a Petition for Review on Certiorari
under Rule 45 of the Rules of Court. This Court rendered judgment on
September 1, 1993, the dispositive portion of which reads:

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WHEREFORE, the trial judge's decision in Civil Case No. 90-53023, dated June
18, 7992, is reversed and set aside and a new one rendered conformably with
the final and executory decision of the Court of Appeals in CA-G.R. SP No.
25938, ordering the private respondents Noah's Ark Sugar Refinery, Alberto T.
Looyuko, Jimmy T. Go and Wilson T. Go, jointly and severally:
(a) to deliver to the petitioner Philippine National Bank, "the
sugar stocks covered by the Warehouse Receipts/Quedans
which are now in the latter's possession as holder for value and
in due course; or alternatively, to pay (said) plaintiff actual
damages in the amount of P39.1 million," with legal interest
thereon from the filing of the complaint until full payment; and
(b) to pay plaintiff Philippine National Bank attorney's fees,
litigation expenses and judicial costs hereby fixed at the
amount of One Hundred Fifty Thousand Pesos (P150,000.00) as
well as the costs.
SO ORDERED.
On September 29, 1993, private respondents moved for reconsideration of
this decision. A Supplemental/Second Motion for Reconsideration with leave of
court was filed by private respondents on November 8, 1993. We denied
private respondent's motion on January 10, 1994.
Private respondents filed a Motion Seeking Clarification of the Decision, dated
September 1, 1993. We denied this motion in this manner:
It bears stressing that the relief granted in this Court's decision
of September 1, 1993 is precisely that set out in the final and
executory decision of the Court of Appeals in CA-G.R. SP No.
25938, dated December 13, 1991, which was affirmed in toto
by this Court and which became unalterable upon becoming
final and executory.
Private respondents thereupon filed before the trial court an Omnibus Motion
seeking among others the deferment of the proceedings until private
respondents [were] heard on their claim for warehouseman's lien. On the
other hand, on August 22, 1994, the Philippine National Bank filed a Motion for
the Issuance of a Writ of Execution and an Opposition to the Omnibus Motion
filed by private respondents.
The trial court granted private respondents' Omnibus Motion on December 20,
1994 and set reception of evidence on their claim for warehouseman's lien.
The resolution of the PNB's Motion for Execution was ordered deferred until
the determination of private respondents' claim.
On February 21, 1995, private respondents' claim for lien was heard and
evidence was received in support thereof. The trial court thereafter gave both
parties five (5) days to file respective memoranda.
On February 28, 1995, the Philippines National bank filed a Manifestation with
Urgent Motion to Nullify Court Proceedings. In adjudication thereof, the trial
court issued the following order on March 1, 1995:

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WHEREFORE, this court hereby finds that there exists in favor of
the defendants a valid warehouseman's lien under Section 27 of
Republic Act 2137 and accordingly, execution of the judgment is
hereby ordered stayed and/or precluded until the full amount of
defendants' lien on the sugar stocks covered by the five (5)
quedans subject of this action shall have been satisfied
conformably with the provisions of Section 31 of Republic Act
2137. 5
Unsatisfied with the trial court's order of 1 March 1995, herein petitioner filed with us G.R.
No. 119231, contending:
I
PNB'S RIGHT TO A WRIT OF EXECUTION IS SUPPORTED BY TWO FINAL AND
EXECUTORY DECISIONS: THE DECEMBER 13, 1991 COURT OF APPEALS [sic]
DECISION IN CA-G.R. SP NO. 25938; AND, THE NOVEMBER 9, 1992 SUPREME
COURT DECISION IN G.R. NO. 107243. RESPONDENT RTC'S MINISTERIAL AND
MANDATORY DUTY IS TO ISSUE THE WRIT OF EXECUTION TO IMPLEMENT THE
DECRETAL PORTION OF SAID SUPREME COURT DECISION.
II
RESPONDENT RTC IS WITHOUT JURISDICTION TO HEAR PRIVATE
RESPONDENTS' OMNIBUS MOTION. THE CLAIMS SET FORTH IN SAID MOTION:
(1) WERE ALREADY REJECTED BY THE SUPREME COURT IN ITS MARCH 9, 1994
RESOLUTION DENYING PRIVATE RESPONDENTS' "MOTION FOR CLARIFICATION
OF DECISION" IN G.R. NO. 107243; AND (2) ARE BARRED FOREVER BY PRIVATE
RESPONDENTS' FAILURE TO INTERPOSE THEM IN THEIR ANSWER, AND FAILURE
TO APPEAL FROM THE JUNE 18, 1992 DECISION IN CIVIL CASE NO. 90-52023.
III
RESPONDENT RTC'S ONLY JURISDICTION IS TO ISSUE THE WRIT TO EXECUTE
THE SUPREME COURT DECISION. THUS, PNB IS ENTITLED TO: (1) A WRIT OF
CERTIORARI TO ANNUL THE RTC RESOLUTION DATED DECEMBER 20, 1994
AND THE ORDER DATED FEBRUARY 7, 1995 AND ALL PROCEEDINGS TAKEN BY
THE RTC THEREAFTER; (2) A WRIT OF PROHIBITION TO PREVENT RESPONDENT
RTC FROM FURTHER PROCEEDING WITH CIVIL CASE NO. 90-53023 AND
COMMITTING OTHER ACTS VIOLATIVE OF THE SUPREME COURT DECISION IN
G.R. NO. 107243; AND (3) A WRIT OF MANDAMUS TO COMPEL RESPONDENT
RTC TO ISSUE THE WRIT TO EXECUTE THE SUPREME COURT JUDGMENT IN
FAVOR OF PNB.
In our decision of 18 April 1996 in G.R. No. 119231, we held against herein petitioner as to
these issues and concluded:
In view of the foregoing, the rule may be simplified thus: While the PNB is
entitled to the stocks of sugar as the endorsee of the quedans, delivery to it
shall be effected only upon payment of the storage fees.
Imperative is the right of the warehouseman to demand payment of his lien at
this juncture, because, in accordance with Section 29 of the Warehouse
Receipts Law, the warehouseman loses his lien upon goods by surrendering
possession thereof. In other words, the lien may be lost where the

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warehouseman surrenders the possession of the goods without requiring
payment of his lien, because a warehouseman's lien is possessory in nature.
We, therefore, uphold and sustain the validity of the assailed orders of public
respondent, dated December 20, 1994 and March 1, 1995.
In fine, we fail to see any taint of abuse of discretion on the part of the public
respondent in issuing the questioned orders which recognized the legitimate
right of Noah's Ark, after being declared as warehouseman, to recover storage
fees before it would release to the PNB sugar stocks covered by the five (5)
Warehouse Receipts. Our resolution, dated March 9, 1994, did not preclude
private respondents' unqualified right to establish its claim to recover storage
fees which is recognized under Republic Act No. 2137. Neither did the Court of
Appeals' decision, dated December 13, 1991, restrict such right.
Our Resolution's reference to the decision by the Court of Appeals, dated
December 13, 1991, in CA-G.R. SP No. 25938, was intended to guide the
parties in the subsequent disposition of the case to its final end. We certainly
did not foreclose private respondents' inherent right as warehouseman to
collect storage fees and preservation expenses as stipulated on the face of
each of the Warehouse Receipts and as provided for in the Warehouse
Receipts Law (R.A. 2137). 6
Petitioner's motion to reconsider the decision in G.R. No. 119231 was denied.
After the decision in G.R. No. 119231 became final and executory, various incidents took
place before the trial court in Civil Case No. 90-53023. The petition in this case summarizes
these as follows:
3.24 Pursuant to the abovementioned Supreme Court Decision, private
respondents filed a Motion for Execution of Defendants' Lien as
Warehouseman dated 27 November 1996. A photocopy of said Motion for
Execution is attached hereto as Annex "I".
3.25 PNB opposed said Motion on the following grounds:
(a) The lien claimed by Noah's Ark in the
unbelievable amount of P734,341,595.06 is
illusory; and
(b) There is no legal basis for execution of
defendants' lien as warehouseman unless and
until PNB compels the delivery of the sugar
stocks.
3.26 In their Reply to Opposition dated 18 January 1997, private respondents
pointed out that a lien existed in their favor, as held by the Supreme Court. In
its Rejoinder dated 7 February 1997, PNB countered private respondents'
argument, pointing out that the dispositive portion of the court a quo's Order
dated 1 March 1995 failed to state the amount for which execution may be
granted and, thus, the same could not be the subject of execution; and (b)
private respondents should instead file a separate action to prove the amount
of its claim as warehouseman.
3.27 The court a quo, this time presided by herein public respondent, Hon.
Marcelino L. Sayo Jr., granted private respondents' Motion for Execution. In its

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questioned Order dated 15 April 1997 (Annex "A"), the court a quo ruled in
this wise:
Accordingly, the computation of accrued storage fees and
preservation charges presented in evidence by the defendants,
in the amount of P734,341,595.06 as of January 31, 1995 for
the 86,356.41, 50 kg. bags of sugar, being in order and with
sufficient basis, the same should be granted. This Court
consequently rejects PNB's claim of no sugar no lien, since it is
undisputed that the amount of the accrued storage fees is
substantially in excess of the alternative award of P39.1 Million
in favor of PNB, including legal interest and P150,000.00 in
attorney's fees, which PNB is however entitled to be
credited . . . .
xxx xxx xxx
WHEREFORE, premises considered and finding merit in the
defendants' motion for execution of their claim for lien as
warehouseman, the same is hereby GRANTED. Accordingly, let a
writ of execution issue for the amount of P662,548,611.50, in
accordance with the above disposition.
SO ORDERED. (Emphasis supplied.)
3.28 On 23 April 1997, PNB was immediately served with a Writ of Execution
for the amount of P662,548,611.50 in spite of the fact that it had not yet been
served with the Order of the court a quo dated 15 April 1997. PNB thus filed
an Urgent Motion dated 23 April 1997 seeking the deferment of the
enforcement of the Writ of Execution. A photocopy of the Writ of Execution is
attached hereto as Annex "J".
3.29 Nevertheless, the Sheriff levied on execution several properties of PNB.
Firstly, a Notice of Levy dated 24 April 1997 on a parcel of land with an area of
Ninety-Nine Thousand Nine Hundred Ninety-Nine (99,999) square meters,
covered by Transfer Certificate of Title No. 23205 in the name of PNB, was
served upon the Register of Deeds of Pasay City. Secondly, a Notice of
Garnishment dated 23 April 1997 on fund deposits of PNB was served upon
the Bangko Sentral ng Pilipinas. Photocopies of the Notice of Levy and the
Notice of Garnishment are attached hereto as Annexes "K" and "L"
respectively.
3.30 On 28 April 1997, petitioner filed a Motion for Reconsideration with
Urgent Prayer for Quashal of Writ of Execution dated 15 April 1997.
Petitioner's Motion was based on the following grounds:
(1) Noah's Ark is not entitled to a
warehouseman's lien in the humongous amount
of P734,341,595.06 because the same has been
waived for not having been raised earlier as
either counterclaim or defense against PNB;
(2) Assuming said lien has not been waived, the
same, not being registered, is already barred by
prescription and/or laches,

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(3) Assuming further that said lien has not been
waived nor barred, still there was no complaint
ever filed in court to effectively commence this
entirely new cause of action;
(4) There is no evidence on record which would
support and sustain the claim of P734,341,595.06
which is excessive, oppressive and
unconscionable;
(5) Said claim if executed would constitute unjust
enrichment to the serious prejudice of PNB and
indirectly the Philippine Government, who
innocently acquired the sugar quedans through
assignment of credit;
(6) In all respects, the decisions of both the
Supreme Court and of the former Presiding Judge
of the trial court do not contain a specific
determination and/or computation of
warehouseman's lien, thus requiring first and
foremost a fair hearing of PNB's evidence, to
include the true and standard industry rates on
sugar storage fees, which if computed at such
standard rate of thirty centavos per kilogram per
month, shall result in the sum of about Three
Hundred Thousand Pesos only.
3.31 In its Motion for Reconsideration, petitioner prayed for the following
reliefs:
1. PNB be allowed in the meantime to exercise its basic right to
present evidence in order to prove the above allegations
especially the true and reasonable storage fees which may be
deducted from PNB's judgment award of P39.1 Million, which
storage fees if computed correctly in accordance with standard
sugar industry rates, would amount to only P300 Thousand
Pesos, without however waiving or abandoning its (PNB's) legal
positions/contentions herein abovementioned.
2. The Order dated April 15, 1997 granting the Motion for
Execution by defendant Noah's Ark be set aside.
3. The execution proceedings already commenced by said
sheriffs be nullified at whatever stage of accomplishment.
A photocopy of petitioner's Motion for Reconsideration with Urgent Prayer for
Quashal of Writ of Execution is attached hereto and made integral part hereof
as Annex "M".
3.32 Private respondents filed an Opposition with Motion for Partial
Reconsideration dated 8 May 1997. Still discontented with the excessive and
staggering amount awarded to them by the court a quo, private respondents'
Motion for Partial Reconsideration sought additional and continuing storage
fees over and above what the court a quo had already unjustly awarded. A

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photocopy of private respondents' Opposition with Motion for Partial
Reconsideration dated 8 May 1997 is attached hereto as Annex "N".
3.32.1 Private respondents prayed for the further amount of
P227,375,472.00 in storage fees from 1 February 1995 until 15
April 1997, the date of the questioned Order granting their
Motion for Execution.
3.32.2 In the same manner, private respondents prayed for a
continuing amount of P345,424.00 as daily storage fees after 15
April 1997 until the total amount of the storage fees is satisfied.
3.33 On 19 May 1997, PNB filed its Reply with Opposition (To Defendants'
Opposition with Partial Motion for Reconsideration), containing therein the
following motions: (i) Supplemental Motion for Reconsideration; (ii) Motion to
Strike out the Testimony of Noah's Ark's Accountant Last February 21, 1995;
and (iii) Motion for the Issuance of a Writ of Execution in favor of PNB. In
support of its pleading, petitioner raised the following:
(1) Private respondents failed to pay the
appropriate docket fees either for its principal
claim or for its additional claim, as said claims for
warehouseman's lien were not at all mentioned in
their answer to petitioner's Complaint;
(2) The amount awarded by the court a quo was
grossly and manifestly unreasonable, excessive,
and oppressive;
(3) It is the dispositive portion of the decision
which shall be controlling in any execution
proceeding. If no specific award is stated in the
dispositive portion, a writ of execution supplying
an amount not included in the dispositive portion
of the decision being executed is null and void;
(4) Private respondents failed to prove the
existence of the sugar stocks in Noah's Ark's
warehouses. Thus, private respondents' claims
are mere paper liens which cannot be the subject
of execution;
(5) The attendant circumstances, particularly
Judge Se's Order of 1 March 1995 onwards, were
tainted with fraud and absence of due process, as
PNB was not given a fair opportunity to present
its evidence on the matter of the
warehouseman's lien. Thus, all orders prescinding
thereform, including the questioned Order dated
15 April 1997 must perforce be set aside and the
execution proceedings against PNB be
permanently stayed.
3.34 On 6 May 1997, petitioner also filed an Urgent Motion to Lift Garnishment
of PNB Funds with Bangko Sentral ng Pilipinas.

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3.35 On 14 July 1997, respondent Judge issued the second Order (Annex "B"),
the questioned part of the dispositive portion of which states:
WHEREFORE, premises considered, the plaintiff Philippine
National Bank's subject "Motion for Reconsideration With Urgent
Prayer for Quashal of Writ of Execution" dated April 28, 1997
and undated "Urgent Motion to Lift Garnishment of PNB Funds
With Bangko Sentral ng Pilipinas" filed on May 6, 1997, together
with all its related Motions are all DENIED with finality for lack of
merit.
xxx xxx xxx
The Order of this Court dated April 15, 1997, the final Writ of
Execution likewise dated April 15, 1997 and the corresponding
Garnishment all stand firm.
SO ORDERED. 7
Aggrieved thereby, petitioners filed this petition, alleging as grounds therefor, the following:
A. THE COURT A QUO ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION OR
WITH GRAVE ABUSE OF DISCRETION WHEN IT ISSUED A WRIT OF EXECUTION
IN FAVOR OF DEFENDANTS FOR THE AMOUNT OF P734,341,595.06.
4.1 The court a quo had no authority to issue a writ of execution in favor of
private respondents as there was no final and executory judgment ripe for
execution.
4.2 Public respondent judge patently exceeded the scope of his authority in
making a determination of the amount of storage fees due private
respondents in a mere interlocutory order resolving private respondents'
Motion for Execution.
4.3 The manner in which the court a quo awarded storage fees in favor of
private respondents and ordered the execution of said award was arbitrary
and capricious, depriving petitioner of its inherent substantive and procedural
rights.
B. EVEN ASSUMING ARGUENDO THAT THE COURT A QUO HAD AUTHORITY TO
GRANT PRIVATE RESPONDENTS' MOTION FOR EXECUTION, THE COURT A QUO
ACTED WITH GRAVE ABUSE OF DISCRETION IN AWARDING THE HIGHLY
UNREASONABLE, UNCONSCIONABLE, AND EXCESSIVE AMOUNT OF
P734,341,595.06 IN FAVOR OF PRIVATE RESPONDENTS.
4.4 There is no basis for the court a quo's award of P734,341,595.06
representing private respondents' alleged warehouseman's lien.
4.5 PNB has sufficient evidence to show that the astronomical amount claimed
by private respondents is very much in excess of the industry rate for storage
fees and preservation expenses.
C. PUBLIC RESPONDENT JUDGE'S GRAVE ABUSE OF DISCRETION BECOMES
MORE PATENT AFTER A CLOSE PERUSAL OF THE QUESTIONED ORDER DATED
14 JULY 1997.

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4.6. The court a quo resolved a significant and consequential matter entirely
relying on documents submitted by private respondents totally disregarding
clearly contrary evidence submitted by PNB.
4.7 The court a quo misquoted and misinterpreted the Supreme Court
Decision dated 18 April 1997.
D. THE COURT A QUO ACTED WITH GRAVE ABUSE OF DISCRETION IN NOT
HOLDING THAT PRIVATE RESPONDENTS HAVE LONG WAIVED THEIR RIGHT TO
CLAIM ANY WAREHOUSEMAN'S LIEN.
4.8 Private respondents raised the matter of their entitlement to a
warehouseman's lien for storage fees and preservation expenses for the first
time only during the execution proceedings of the Decision in favor of PNB.
4.9 Private respondents' claim for warehouseman's lien is in the nature of a
compulsory counterclaim which should have been included in private
respondents' answer to the Complaint. Private respondents failed to include
said claim in their answer either as a counterclaim or as an alternative
defense to PNB's Complaint.
4.10 Private respondents' clam is likewise lost by virtue of a specific provision
of the Warehouse Receipts Law and barred by prescription and laches.
E. PUBLIC RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION IN
REFUSING TO LIFT THE ORDER OF GARNISHMENT OF THE FUNDS OF PNB WITH
THE BANGKO SENTRAL NG PILIPINAS.
4.11 Public respondent judge failed to consider PNB's arguments in support of
its Urgent motion to Lift Garnishment. 8
In arguing its cause, petitioner explained that this Court's decision in G.R. No. 119231
merely affirmed the trial court's resolutions of 20 December 1994 and 1 March 1995. The
earlier resolution set private respondents' reception of evidence for hearing to prove their
warehouseman's lien and, pending determination thereof, deferred petitioner's motion for
execution of the summary judgment rendered in petitioner's favor in G.R. No. 107243. The
subsequent resolution recognized the existence of a valid warehouseman's lien without,
however, specifying the amount, and required its full satisfaction by petitioner prior to the
execution of the judgment in G.R. No. 107243.
Under said circumstances, petitioner reiterated that neither this Court's decision nor the trial
court's resolutions specified any amount for the warehouseman's lien, either in the bodies or
dispositive portions thereof. Petitioner therefore questioned the propriety of the computation
of the warehouseman's lien in the assailed order of 15 April 1997.
Petitioner further characterized as highly irregular the trial court's final determination of
such lien in a mere interlocutory order without explanation, as such should or could have
been done only by way of a judgment on the merits. Petitioner likewise reasoned that a writ
of execution was proper only to implement a final and executory decision, which was not
present in the instant case. Petitioner then cited the cases of Edward v. Arce, where we ruled
that the only portion of the decision which could be the subject of execution was that
decreed in the dispositive part, 9 and Ex-Bataan Veterans Security Agency, Inc. v. National
Labor Relations Commission, 10 where we held that a writ of execution should conform to the
dispositive portion to be executed, otherwise, execution becomes void if in excess of and
beyond the original judgment.

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Petitioner likewise emphasized that the hearing of 21 February 1995 was marred by
procedural infirmities, narrating that the trial court proceeded with the hearing
notwithstanding the urgent motion for postponement of petitioner's counsel of record, who
attended a previously scheduled hearing in Pampanga. However, petitioner's lawyerrepresentative was sent to confirm the allegations in said motion. To petitioner's dismay,
instead of granting a postponement, the trial court allowed the continuance of the hearing
on the basis that there was "nothing sensitive about [the presentation of private
respondents' evidence]." 11 At the same hearing, the trial court admitted all the
documentary evidence offered by private respondents and ordered the filing of the parties'
respective memoranda. Hence, petitioner was virtually deprived of its right to cross-examine
the witness, comment on or object to the offer of evidence and present countervailing
evidence. In fact, to date, petitioner's urgent motion to nullify the court proceedings remains
unresolved.
To stress its point, petitioner underscores the conflicting views of Judge Benito C. Se, Jr., who
heard and tried almost the entire proceedings, and his successor, Judge Marcelino L. Sayo,
Jr., who issued the assailed orders. In the resolution 12 of 1 March 1995, Judge Se found
private respondents' claim for warehouse lien in the amount of P734,341,595.06
unacceptable, thus:
In connection with [private respondents'] claim for payment of warehousing
fees and expenses, this Court cannot accept [private respondents'] pretense
that they are entitled to storage fees and preservation expenses in the
amount of P734,341,595.06 as shown in their Exhibits "1" to "11". There
would, however, appear to be legal basis for their claim for fees and expenses
covered during the period from the time of the issuance of the five (5)
quedans until demand for their delivery was made by [petitioner] prior to the
institution of the present action. [Petitioner] should not be made to shoulder
the warehousing fees and expenses after the demand was made. . . . 13
Since it was deprived of a fair opportunity to present its evidence on the warehouseman's
lien due Noah's Ark, petitioner submitted the following documents: (1) an affidavit of
petitioner's credit investigator 14 and his report 15 indicating that Noah's Ark only had 1,490,
50kg. bags, and not 86,356.41, 50kg. bags, of sugar in its warehouse; (2) Noah's Ark's
reports 16 for 1990-94 showing that it did not have sufficient sugar stock to cover the
quantity specified in the subject quedans, (3) Circular Letter No. 18 (s. 1987-88) 17 of the
Sugar Regulatory Administration requiring sugar mill companies to submit reports at week's
end to prevent the issuance of warehouse receipts not covered by actual inventory; and (4)
an affidavit of petitioner's assistant vice president 18 alleging that Noah's Ark's daily storage
fee of P4/bag exceeded the prevailing industry rate.
Petitioner, moreover, laid stress on the fact that in the questioned order of 14 July 1997, the
trial court relied solely on the Annual Synopsis of Production & Performance Date/Annual
Compendium of Performance by Philippine Sugar Refineries from 1989 to 1994, in disregard
of Noah's Ark's certified reports that it did not have sufficient sugar stock to cover the
quantity specified in the subject quedans. Between the two, petitioner urged, the latter
should have been accorded greater evidentiary weight.
Petitioner then argued that the trial court's second assailed order of 14 July 1997
misinterpreted our decision in G.R. No. 119231 by ruling that the Refining Contract under
which the subject sugar stock was produced bound the parties. According to petitioner, the
Refining Contract never existed, it having been denied by Rosa Ng Sy; thus, the trial court
could not have properly based its computation of the warehouseman's lien on the Refining
Contract. Petitioner maintained that a separate trial was necessary to settle the issue of the
warehouseman's lien due Noah's Ark, if at all proper.

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Petitioner further asserted that Noah's Ark could no longer recover its lien, having raised the
issue for the first time only during the execution proceedings of this Court's decision in G.R.
No. 107243. As said claim was a separate cause of action which should have been raised in
private respondents' answer with counterclaim to petitioner's complaint, private
respondents' failure to raise said claim should have been deemed a waiver thereof.
Petitioner likewise insisted that under Section 29 19 of the Warehouse Receipts Law, private
respondents were barred from claiming the warehouseman's lien due to their refusal to
deliver the goods upon petitioner's demand. Petitioner further raised that private
respondents failed to timely assert their claim within the five-year prescriptive period, citing
Article 1149 20 of the New Civil Code.
Finally, petitioner questioned the trial court's refusal to lift the garnishment order
considering that the levy on its real property, with an estimated market value of
P6,000,000,000, was sufficient to satisfy the judgment award; and contended that the
garnishment was contrary to Section 103 21 of the Bangko Sentral ng Pilipinas Law (Republic
Act No. 7653).
On 8 August 1997, we required respondents to comment on the petition and issued a
temporary restraining order enjoining the trial court form implementing its orders of 15 April
and 14 July 1997.
In their comment, private respondents first sought the lifting of the temporary restraining
order, claiming that petitioner could no longer seek a stay of the execution of this Court's
decision in G.R. No. 119231 which had become final and executory; and the petition raised
factual issues which had long been resolved in the decision in G.R. No. 119231, thereby
rendering the instant petition moot and academic. They underscored that CA-G.R. No. SP No.
25938, G.R. No. 107243 and G.R. No. 119231 all sustained their claim for a warehouseman's
lien, while the storage fees stipulated in the Refining Contract had the approval of the Sugar
Regulatory Authority. Likewise, under the Warehouse Receipts Law, full payment of their lien
was a pre-requisite to their obligation to release and deliver the sugar stock to petitioner.
Anent the trial court's jurisdiction to determine the warehouseman's lien, private
respondents maintained that such had already been established. Accordingly, the resolution
of 1 March 1995 declared that they were entitled to a warehouseman's lien, for which
reason, the execution of the judgment in favor of petitioner was stayed until the latter's full
payment of the lien. This resolution was then affirmed by this Court in our decision in G.R.
No. 119231. Even assuming the trial court erred, the error could only have been in the
wisdom of its findings and not of jurisdiction, in which case, the proper remedy of petitioner
should have been an appeal and certiorari did not lie.
Private respondents also raised the issue of res judicata as a bar to the instant petition, i.e.,
the March resolution was already final and unappealable, having been resolved in G.R. No.
119231, and the orders assailed here were issued merely to implement said resolution.
Private respondents then debunked the claim that petitioner was denied due process. In that
February hearing, petitioner was represented by counsel who failed to object to the
presentation and offer of their evidence consisting of the five quedans, Refining Contracts
with petitioner and other quedan holders, and the computation resulting in the amount of
P734,341,595.06, among other documents. Private respondents even attached a copy of the
transcript of stenographic notes 22 to their comment. In refuting petitioner's argument that
no writ of execution could issue in absence of a specific amount in the dispositive portion of
this Court's decision in G.R. No. 119231, private respondents argued that any ambiguity in
the decision could be resolved by referring to the entire record of the case, 23 even after the
decision had become final.

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Private respondents next alleged that the award of P734,341,595.06 to satisfy their
warehouseman's lien was in accordance with the stipulations provided in the quedans and
the corresponding Refining Contracts, and that the validity of said documents had been
recognized by this Court in our decision in G.R. No. 119231. Private respondents then
questioned petitioner's failure to oppose or rebut the evidence they presented and bewailed
its belated attempts to present contrary evidence through its pleadings. Nonetheless, said
evidence was even considered by the trial court when petitioner sought a reconsideration of
the first assailed order of 15 April 1997, thus further precluding any claim of denial of due
process.
Private respondents next pointed to the fact that they consistently claimed that they had not
been paid for storing the sugar stock, which prompted them to file criminal charges of estafa
and violation of Batas Pambansa (BP) Blg. 22 against Rosa Ng Sy and Teresita Ng. In fact, Sy
was eventually convicted of two counts of violation of BP Blg. 22. Private respondents,
moreover, incurred, and continue to incur, expenses for the storage and preservation of the
sugar stock; and denied having waived their warehouseman's lien, an issue already raised
and rejected by this Court in G.R. No. 119231.
Private respondents further claimed that the garnishment order was proper, only that it was
rendered ineffective. In a letter 24 received by the sheriff from the Bangko Sentral ng
Pilipinas, it was stated that the garnishment could not be enforced since petitioner's deposits
with the Bangko Sentral ng Pilipinas consisted solely of legal reserves which were exempt
from garnishment. Petitioner therefore suffered no damage from said garnishment. Private
respondents likewise deemed immaterial petitioner's argument that the writ of execution
issued against its real property in Pasay City was sufficient, considering its prevailing market
value of P6,000,000,000 was in excess of the warehouseman's lien; and invoked Rule 39 of
the 1997 Rules of Civil Procedure, which provided that the sheriff must levy on all the
property of the judgment debtor, excluding those exempt from execution, in the execution of
a money judgment.
Finally, private respondents accused petitioner of coming to court with unclean hands,
specifically citing its misrepresentation that the award of the warehouseman's lien would
result in the collapse of its business. This claim, private respondents asserted, was
contradicted by petitioner's 1996 Audited Financial Statement indicating that petitioner's
assets amounted to billions of pesos, and its 1996 Annual Report to its stockholders where
petitioner declared that the pending legal actions arising from their normal course of
business "will not materially affect the Group's financial position." 25
In reply, petitioner advocated that resort to the remedy of certiorari was proper since the
assailed orders were interlocutory, and not a final judgment or decision. Further, that it was
virtually deprived of its constitutional right to due process was a valid issue to raise in the
instant petition; and not even the doctrine of res judicata could bar this petition as the
element of a final and executory judgment was lacking. Petitioner likewise disputed the
claim that the resolution of 1 March 1995 was final and executory, otherwise private
respondents would not have filed an opposition and motion for partial reconsideration 26 two
years later. Petitioner also contended that the issues raised in this petition were not resolved
in G.R. No. 119231, as what was resolved there was private respondents' mere entitlement
to a warehouseman's lien, without specifying a corresponding amount. In the instant
petition, the issues pertained to the amount and enforceability of said lien based on the
arbitrary manner the amount was determined by the trial court.
Petitioner further argued that the refining contracts private respondents invoked could not
bind the former since it was not a party thereto. In fact, said contracts were not even
attached to the quedans when negotiated; and that their validity was repudiated by a
supposed party thereto, Rosa Ng Sy, who claimed that the contract was simulated, thus void
pursuant to Article 1345 of the New Civil Code. Should the refining contracts in turn be
declared void, petitioner advocated that any determination by the court of the existence and

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amount of the warehouseman's lien due should be arrived at using the test of
reasonableness. Petitioner likewise noted that the other refining contracts 27 presented by
private respondents to show similar storage fees were executed between the years 1996
and 1997, several years after 1989. Thus, petitioner concluded, private respondents could
not claim that the more recent and increased rates where those which prevailed in 1989.
Finally, petitioner asserted that in the event that this Court should uphold the trial court's
determination of the amount of the warehouseman's lien, petitioner should be allowed to
exercise its option as a judgment obligor to specify which of its properties may be levied
upon, citing Section 9(b), Rule 39 of the 1997 Rules of Civil Procedure. Petitioner claimed to
have been deprived of this option when the trial court issued the garnishment and levy
orders.
The petition was set for oral argument on 24 November 1997 where the parties addressed
the following issues we formulated for them to discuss:
(1) Is this special civil action the appropriate remedy?
(2) Has the trial court the authority to issue a writ of execution on Noah's Ark's
claims for storage fees considering that this Court in G.R. No. 119231 merely
sustained the trial court's order of 20 December 1994 granting the Noah's Ark
Omnibus Motion and setting the reception of evidence on its claims for
storage fees, and of 1 March 1995 finding that there existed in favor of Noah's
Ark a warehouseman's lien under Section 27 of R.A. No. 2137 and directing
that the execution of the judgment in favor of PNB be stayed and/or precluded
until the full amount of Noah's Ark's lien is satisfied conformably with Section
31 of R.A. No. 2137?
(3) Is [petitioner] liable for storage fees (a) from the issuance of the quedans
in 1989 to Rosa Sy, St. Therese Merchandising and RNS Merchandising, up to
their assignment by endorsees Ramos and Zoleta to [petitioner] for their loan;
or (b) after [petitioner] has filed an action for specific performance and
damages (Civil Case No. 90-53023) against Noah's Ark for the latter's failure
to comply with [petitioner's] demand for the delivery of the sugar?
(4) Did respondent Judge commit grave abuse of discretion as charged?
28
In our resolution of 24 November 1997, we summarized the positions of the parties on these
issues, thus:
Expectedly, counsel for petitioner submitted that certiorari under Rule 65 of
the Rules of Court is the proper remedy and not an ordinary appeal,
contending, among others, that the order of execution was not final. On the
other hand, counsel for respondents maintained that petitioner PNB
disregarded the hierarchy of courts as it bypassed the Court of Appeals when
it filed the instant petition before this Court.
On the second issue, counsel for petitioner submitted that the trial court had
no authority to issue the writ of execution or if it had, it denied PNB due
process when it held PNB liable for the astronomical amount or
P734,341,595.06 as warehouseman's lien or storage fees. Counsel for
respondent, on the other hand, contended that the trial court's authority to
issue the questioned writ of execution is derived from the decision in G.R. No.
119231 which decision allegedly provided for ample or sufficient parameters
for the computation of the storage fees.

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On the third issue, counsel for petitioner while presupposing that PNB may be
held to answer for storage fees, contended that the same should start from
the time the endorsees of the sugar quedans defaulted in their payments, i.e.,
1990 because before that, respondent Noah's Ark's claim was that it was the
owner of the sugar covered by the quedans. On the other hand, respondents'
counsel pointed out that PNB's liability should start from the issuance of the
quedans in 1989.
The arguments on the fourth issue, hinge on the parties' arguments for or
against the first three issues. Counsel for petitioner stressed that the trial
court indeed committed a grave abuse of discretion, while respondents'
counsel insisted that no grave abuse of discretion was committed by the trial
court. 29
Private respondents likewise admitted that during the pendency of the case, they failed to
avail of their options as a warehouseman. Concretely, they could have enforced their lien
through the foreclosure of the goods or the filing of an ordinary civil action. Instead, they
sought to execute this Court's judgment in G.R. No. 119231. They eventually agreed that
petitioner's liability for the warehouseman's lien should be reckoned from the time it stepped
into the shoes of the original depositors. 30
In our resolution of 24 November 1997, we required the parties to simultaneously submit
their respective memoranda within 30 days or, in the alternative, a compromise agreement
should a settlement be achieved. Notwithstanding efforts exerted by the parties, no
mutually acceptable solution was reached.
In their respective memoranda, the parties reiterated or otherwise buttressed the arguments
raised in their previous pleadings and during the oral arguments on 24 November 1997,
especially on the formulated issues.
The petition is meritorious.
We shall take up the formulated issues in seriatim.
A. This Special Civil Action is an Appropriate Remedy.
A careful perusal of the first assailed order shows that the trial court not only granted the
motion for execution, but also appreciated the evidence in the determination of the
warehouseman's lien; formulated its computation of the lien; and adopted an offsetting of
the parties' claims. Ineluctably, the order as in the nature of a final order for it left nothing
else to be resolved thereafter. Hence, petitioner's remedy was to appeal therefrom. 31
Nevertheless, petitioner was not precluded from availing of the extraordinary remedy of
certiorari under Rule 65 of the Rules of Court. It is well-settled that the availability of an
appeal does not foreclose recourse to the extraordinary remedies of certiorari or prohibition
where appeal is not adequate, or equally beneficial, speedy and sufficient. 32
Petitioner assailed the challenged orders as having been issued without or in excess of
jurisdiction or with grave abuse of discretion and alleged that it had no other plain, speedy
and adequate remedy in the ordinary course of law. As hereafter shown, these claims were
not unfounded, thus the propriety of this special civil action is beyond question.
This Court had original jurisdiction, concurrent with that of Regional Trial Courts and the
Court of Appeals, over petitions for certiorari, prohibition, mandamus, quo warranto and
habeas curpus, 33 and we entertain direct resort to us in cases where special and important
reasons or exceptional and compelling circumstances justify the same. 34 These reasons and
circumstances are present here.

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B. Under the Special Circumstances in This Case, Private
Respondents May Enforce Their Warehouseman 's Lien
in Civil Case No. 90-53023.
The remedies available to a warehouseman, such as private respondents, to enforce his
warehouseman's lien are:
(1) To refuse to deliver the goods until his lien is satisfied,
pursuant to Section 31 of the Warehouse Receipt Law;
(2) To sell the goods and apply the proceeds thereof to the
value of the lien pursuant to Sections 33 and 34 of the
Warehouse Receipts Law; and
(3) By other means allowed by law to a creditor against his
debtor, for the collection from the depositor of all charges and
advances which the depositor expressly or impliedly contracted
with the warehouseman to pay under Section 32 of the
Warehouse Receipt Law; or such other remedies allowed by law
for the enforcement of a lien against personal property under
Section 35 of said law. The third remedy is sought judicially by
suing for the unpaid charges. 35
Initially, private respondents availed of the first remedy. However, when petitioner moved to
execute the judgment in G.R. No. 107243 before the trial court, private respondents, in turn,
moved to have the warehouse charges and fees due them determined and thereafter sought
to collect these from petitioners. While the most appropriate remedy for private respondents
was an action for collection, in G.R. No. 119231, we already recognized their right to have
such charges and fees determined in Civil Case No. 90-53023. The import of our holding in
G.R. No. 119231 was that private respondents were likewise entitled to a judgment on their
warehouse charges and fees, and the eventual satisfaction thereof, thereby avoiding having
to file another action to recover these charges and fees, which would only have further
delayed the resolution of the respective claims of the parties, and as a corollary thereto, the
indefinite deferment of the execution of the judgment in G.R. No. 107243. Thus we note that
petitioner, in fact, already acquiesced to the scheduled dates previously set for the hearing
on private respondents' warehouseman's charges.
However, as will be shown below, it would be premature to execute the order fixing the
warehouseman's charges and fees.
C. Petitioner is Liable for Storage Fees.
We confirmed petitioner's liability for storage fees in G.R. No. 119231. However, petitioner's
status as to the quedans must first be clearly defined and delineated to be able to determine
the extent of its liability.
Petitioner insisted, both in its petition and during the oral arguments on 24 November 1997,
that it was a mere pledgee as the quedans were used to secure two loans it granted. 36 In
our decision in G.R. No. 107243, we upheld this contention of petitioner, thus;
Zoleta and Ramos then used the quedans as security for loans obtained by
them from the Philippine National Bank (PNB) as security for loans obtained by
them in the amounts of P23.5 million and P15.6 million, respectively. These
quedans they indoors to the bank. 37
As such, Martinez v. Philippine National Bank
38
becomes relevant:

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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.
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, 39 merely constituted a symbolical or
constructive delivery of the possession of the thing thus encumbered. 40
The creditor, in a contract of real security, like pledge, cannot appropriate without
foreclosure the things given by way of pledge. 41 Any stipulation to the contrary, termed
pactum commissorio, is null and void. 42 The law requires foreclosure in order to allow a
transfer of title of the good given by way of security from its pledgor, 43 and before any such
foreclosure, the pledgor, not the pledgee, is the owner of the goods. In Philippine National
Bank v. Atendido, 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.
The warehouseman, nevertheless, is entitled to the warehouseman's lien that attaches to
the goods invokable against anyone who claims a right of possession thereon.
The next issue to resolve is the duration of time the right of petitioner over the goods may
be held subject to the warehouseman's lien.
Sec. 8, 29 and 31 of the Warehouse Receipts Law now come to fore. They provide, as
follows:
Sec. 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 warehouseman's lien;

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(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.
Sec. 29. How the lien may be lost. A warehouseman loses his lien upon
goods;
(a) By surrendering possession thereof, or.
(b) By refusing to deliver the goods when a
demand is made with which he is bound to
comply under the provisions of this Act.
Sec. 31. Warehouseman need not deliver until lien is satisfied. A
warehouseman having a lien valid against the person demanding the goods
may refuse to deliver the goods to him until the lien is satisfied.
Simply put, 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 statute itself, the warehouseman's lien is thereafter concomitantly lost. As to what the
law deems a valid demand, Section 8 enumerates what must accompany a demand; while
as regards the reasons which a warehouseman may invoke to legally refuse to effect
delivery of the goods covered by the quedans, these are:
(1) That the holder of the receipt does not satisfy the conditions prescribed in
Section 8 of the Act. (See Sec. 8, Act No. 2137)
(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
warehouseman's lien. (Sec. 16, Act No. 2137)
(3) That the warehouseman has legally set up the title or right of third persons
as lawful defense for non-delivery of the goods as follows:
(a) Where the warehouseman has been requested, by or on
behalf of the person lawfully entitled to a right of property of or
possession in the goods, not to make such delivery (Sec. 10, Act
No. 2137), in which case, the warehouseman may, either as a
defense to an action brought against him for nondelivery of the
goods, or as an original suit, whichever is appropriate, require
all known claimants to interplead (Sec. 17, Act No. 2137);
(b) Where the warehouseman had information that the delivery
about to be made was to one not lawfully entitled to the
possession of the goods (Sec. 14 Act No. 2137), in which case,

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the warehouseman shall be excused from liability for refusing to
deliver the goods, either to the depositor or person claiming
under him or to the adverse claimant, until the warehouseman
has had a reasonable time to ascertain the validity of the
adverse claims or to bring legal proceedings to compel all
claimants to interplead (Sec. 18, Act No. 2137); and
(c) Where the goods have already been lawfully sold to third
persons to satisfy a warehouseman's lien, or have been lawfully
sold or disposed of because of their perishable or hazardous
nature. (Sec. 36, Act No. 2137).
(4) That the warehouseman having a lien valid against the person demanding
the goods refuses to deliver the goods to him until the lien is satisfied. (Sec.
31 Act No. 2137)
(5) That the failure was not due to any fault on the part of the warehouseman,
as by showing that, prior to demand for delivery and refusal, the goods were
stolen or destroyed by fire, flood, etc., without any negligence on his part,
unless he has contracted so as to be liable in such case, or that the goods
have been taken by the mistake of a third person without the knowledge or
implied assent of the warehouseman, or some other justifiable ground for nondelivery. (67 C.J. 532) 45
Regrettably, the factual settings do not sufficiently indicate whether the demand to obtain
possession of the goods complied with Section 8 of the law. The presumption, nevertheless,
would be that the law was complied with, rather than breached, by petitioner. Upon the
other hand, it would appear that the refusal of private respondents to deliver the goods was
not anchored on a valid excuse, i.e., non-satisfaction of the warehouseman's lien over the
goods, but on an adverse claim of ownership. Private respondents justified their refusal to
deliver the goods, as stated in their Answer with Counterclaim and Third-Party Complaint in
Civil Case No. 90-53023, by claiming that they "are still the legal owners of the subject
quedans and the quantity of sugar represented therein." Under the circumstances, this
hardly qualified as a valid, legal excuse. The loss of the warehouseman's lien, however, does
not necessarily mean the extinguishment of the obligation to pay the warehousing fees and
charges which continues to be a personal liability of the owners, i.e., the pledgors, not the
pledgee, in this case. But even as to the owners-pledgors, the warehouseman fees and
charges have ceased to accrue from the date of the rejection by Noah's Ark to heed the
lawful demand by petitioner for the release of the goods.
The finality of our denial in G.R. No. 119231 of petitioner's petition to nullify the trial court's
order of 01 March 1995 confirms the warehouseman's lien; however, such lien, nevertheless,
should be confined to the fees and charges as of the date in March 1990 when Noah's Ark
refused to heed PNB's demand for delivery of the sugar stocks and in no event beyond the
value of the credit in favor of the pledgee (since it is basic that, in foreclosures, the buyer
does not assume the obligations of the pledgor to his other creditors even while such buyer
acquires title over the goods less any existing preferred lien thereover). 46 The foreclosure of
the thing pledged, it might incidentally be mentioned, results in the full satisfaction of the
loan liabilities to the pledgee of the pledgors. 47
D. Respondent Judge Committed Grave Abuse of Discretion.
We hold that the trial court deprived petitioner of due process in rendering the challenged
order of 15 April 1996 without giving petitioner an opportunity to present its evidence.
During the final hearing of the case, private respondents commenced and concluded their
presentation of evidence as to the matter of the existence of and amount owing due to their

Cases
warehouseman's lien. Their exhibits were duly marked and offered and the trial court
thereafter ruled, to wit:
Court: Order.
With the admission of Exhibits "1" to "11", inclusive of
submarkings, as part of the testimony of Benigno Bautista, the
defendant [private respondents] is given five (5) days from
today to file its memorandum. Likewise, plaintiff [petitioner] is
given five (5) days, from receipt of defendants' [private
respondents'] memorandum, to file its comment thereto.
Thereafter the same shall be deemed submitted for decision.
SO ORDERED.
48
Nowhere in the transcript of stenographic notes, however, does it show that petitioner was
afforded an opportunity to comment on, much less, object to, private respondents' offer of
exhibits, or even present its evidence on the matter in dispute. In fact, petitioner
immediately moved to nullify the proceedings conducted during that hearing, but its motion
was ignored and never resolved by the trial court. Moreover, it cannot be said that
petitioner's filing of subsequent pleadings, where it attached its affidavits and documents to
contest the warehouseman's lien, was sufficient to fully satisfy the requirements of due
process. The subsequent pleadings were filed only to show that petitioner had evidence to
refute the claims of private respondents or that the latter were not entitled thereto, but
could not have adequately substituted for a full-blown opportunity to present its evidence,
given the exorbitant amounts involved. This, when coupled with the fact that the motion to
postpone the hearing filed by petitioner's counsel was not unreasonable, leads us to
conclude that petitioner's right to fully present its case was rendered nugatory. It is thus
evident to us that there was undue and unwarranted haste on the part of respondent court
to rule in favor of private respondents. We do not hesitate to say that any tilt of the scales of
justice, no matter how slight, evokes suspicion and erodes a litigant's faith and hope in
seeking recourse before courts of law.
Likewise do we refuse to give credence to private respondents' allegation that the parties
agreed that petitioner's presentation of evidence would be submitted on the basis of
affidavits, 49 without, however, specifying any order or written agreement to that effect.
It is interesting to note that among the evidence petitioner wanted to present were reports
obtained from Noah's Ark, disclosing that the latter failed to maintain a sufficient inventory
to satisfy the sugar stock covered by the subject quedans. This was a serious allegation, and
on that score alone, the trial court should have allowed a hearing on the matter, especially
in light of the magnitude of the claims sought. If it turns out to be true that the stock of
sugar Noah's Ark had in possession was below the quantities specified in the quedans, then
petitioner should not be made to pay for storage and preservation expenses for non-existent
goods.
It was likewise grave abuse of discretion on the part of respondent court to order immediate
execution of the 15 April 1997 order. We ruled earlier that said order was in the nature of a
final order fixing the amount of the warehouseman's charges and fees, and petitioner's net
liability, after the set-off of the money judgment in its favor in G.R. No. 107243. Section 1 of
Rule 39 of the Rules of Court explicitly provides that execution shall issue as a matter of
right, on motion, upon a judgment or order that disposes of the action or proceeding upon
the expiration of the period to appeal therefrom if no appeal has been duly perfected.
Execution pending appeal is, however, allowed in Section 2 thereof, but only on motion with
due notice to the adverse party, more importantly, only "upon good reasons shown in a
special order." Here, there is no showing that a motion for execution pending appeal was
filed and that a special order was issued by respondent court. Verily, the immediate

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execution only served to further strengthen our perception of undue and unwarranted haste
on the part of respondent court in resolving the issue of the warehouseman's lien in favor of
private respondents.
In light of the above, we need not rule anymore on the fourth formulated issue.
WHEREFORE, the petition is GRANTED. The challenged orders of 15 April and 14 July 1997,
including the notices of levy and garnishment, of the Regional Trial Court of Manila, Branch
45, in Civil Case No. 90-53023 are REVERSED and SET ASIDE, and said court is DIRECTED to
conduct further proceedings in said case:
(1) to allow petitioner to present its evidence on the matter of
the warehouseman's lien;
(2) to compute the petitioner's warehouseman's lien in light of
the foregoing observations; and
(3) to determine whether, for the relevant period, Noah's Ark
maintained a sufficient inventory to cover the volume of sugar
specified in the quedans.
Costs against private respondents.
SO ORDERED.
Bellosillo, Vitug, Panganiban and Quisumbing, JJ., concur.
G.R. No. L-6342
January 26, 1954
PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
LAUREANO ATENDIDO, defendants-appellant.
Nicolas Fernandez for appellee.
Gaudencio L. Atendido for appellant.
BAUTISTA, ANGELO, J.:

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This is an appeal from a decision of the Court of First Instance of Nueva Ecija which orders
the defendant to pay to the plaintiff the sum of P3,000, with interest thereon at the rate of
6% per annum from June 26, 1940, and the costs of action.
On June 26, 1940, Laureano Atendido obtained from the Philippine National Bank a loan of
P3,000 payable in 120 days with interests at 6% per annum from the date of maturity. To
guarantee the payment of the obligation the borrower pledged to the bank 2,000 cavanes of
palay which were then deposited in the warehouse of Cheng Siong Lam & Co. in San Miguel,
Bulacan, and to that effect the borrower endorsed in favor of the bank the corresponding
warehouse receipt. Before the maturity of the loan, the 2,000 cavanes of palay disappeared
for unknown reasons in the warehouse. When the loan matured the borrower failed to pay
either the principal or the interest and so the present action was instituted.
Defendant set up a special defense and a counterclaim. As regards the former, defendant
claimed that the warehouse receipt covering the palay which was given as security having
been endorsed in blank in favor of the bank, and the palay having been lost or disappeared,
he thereby became relieved of liability. And, by way of counterclaim, defendant claimed that,
as a corollary to his theory, he is entitled to an indemnity which represents the difference
between the value of the palay lost and the amount of his obligation.
The case was submitted on an agreed statements of facts and thereupon the court rendered
judgment as stated in the early part of this decision.
Defendant took the case on appeal to the Court of Appeals but later it was certified to this
Court on the ground that the question involved is purely one of law.
The only issue involved in this appeal is whether the surrender of the warehouse receipt
covering the 2,000 cavanes of palay given as a security, endorsed in blank, to appellee, has
the effect of transferring their title or ownership to said appellee, or it should be considered
merely as a guarantee to secure the payment of the obligation of appellant.
In upholding the view of appellee, the lower court said: "The surrendering of warehouse
receipt No. S-1719 covering the 2,000 cavanes of palay by the defendant in favor of the
plaintiff was not that of a final transfer of that warehouse receipt but merely as a guarantee
to the fulfillment of the original obligation of P3,000.00. In other word, plaintiff corporation
had no right to dispose (of) the warehouse receipt until after the maturity of the promissory
note Exhibit A. Moreover, the 2,000 cavanes of palay were not in the first place in the actual
possession of plaintiff corporation, although symbolically speaking the delivery of the
warehouse receipt was actually done to the bank."
We hold this finding to be correct not only because it is in line with the nature of a contract
of pledge as defined by law (Articles 1857, 1858 & 1863, Old Civil Code), but is supported by
the stipulations embodied in the contract signed by appellant when he secured the loan
from the appellee. There is no question that the 2,000 cavanes of palay covered by the
warehouse receipt were given to appellee only as a guarantee to secure the fulfillment by
appellant of his obligation. This clearly appears in the contract Exhibit A wherein it is
expressly stated that said 2,000 cavanes of palay were given as a collateral security. The
delivery of said palay being merely by way of security, it follows that by the very nature of
the transaction its ownership remains with the pledgor subject only to foreclose 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 (Article 1872,
Old 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). If by the contract of pledge the pledgor continues to be the owner of the thing
pledged during the pendency of the obligation, it stands to reason that in case of loss of the
property, the loss should be borne by the pledgor. The fact that the warehouse receipt

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covering the 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 pledgee and to forestall any possible disposition thereof on the part of the
pledgor. This is true notwithstanding the provisions to the contrary of the Warehouse Receipt
Law.
In case recently decided by this Court (Martinez vs. Philippine National Bank, 93 Phil., 765)
which involves a similar transaction, this Court held:
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.
Wherefore, the decision appealed from is affirmed, with costs against appellant.
Bengzon, Padilla, Montemayor, Jugo, Reyes and Labrador, JJ., concur.

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G.R. No. 107243 September 1, 1993

PHILIPPINE NATIONAL BANK, petitioner,
vs.
NOAH'S ARK SUGAR REFINERY, ALBERTO T. LOOYUKO, JIMMY T. GO, WILSON T. GO,
respondents.
Santiago, Jr. Vida, Corpuz & Associates for petitioner.
Tomas P. Madella Jr. for respondents.
NARVASA, C.J.:
The case at bar involves extraordinary situation in which a Regional Trial
Judge after receiving notice to the final and executory judgment of the Court of Appeals in
a special civil action of certiorari in which said Trial Judge was a respondent, and which
judgment contained the following disposition, viz.:
In issuing the questioned Orders, We find the respondent Court to have acted
in grave abuse of discretion which justify holding null and void and setting
aside the Orders date May 2 and July 4, 1990 of respondent Court, and that a
summary judgment be rendered forthwith in favor of the PNB against Noah's
Ark Sugar Refinery, et al., as prayed for in petitioner's Motion for Summary
Judgment.
SO ORDERED.
proceeded to render judgment, not "in favor of the PNB against Noah's Ark Sugar
Refinery, et al.," but in favor of the latter and its co-defendants. That judgment has been
appealed by PNB to this Court "on pure questions of law."
No dispute exists about the facts which gave rise to the controversy at bar.
In accordance with Act No. 2137, the Warehouse Receipts Law, Noah's Ark Sugar Refinery
issued on several dates warehouse receipts (quedans) as follows:
March 1, 1989, receipt No. 18062 covering sugar deposited by Rosa Sy;
March 7, 1989, receipt No. 18080 covering sugar deposited by RNS
Merchandising (Rosa Ng Sy);
March 21, 1989, receipt No. 18081 covering sugar deposited by RNS
Merchandising;
March 31, 1989, receipt No. 18086 covering sugar deposited by St. Therese
Merchandising; and
April 1, 1989, receipt No. 18087 covering sugar deposited by RNS
Merchandising.

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The receipts are substantially in the form, and contain the terms, prescribed for negotiable
warehouse receipts by Section 2 of the law.
Subsequently, warehouse receipts Numbered 18080 and 18081 (covering sugar deposited
by RNS Merchandising) were negotiated and indorsed to Luis T. Ramos; and receipts
Numbered 18086 (sugar of St. Therese Merchandising), 18087 (sugar of RNS Merchandising)
and 18062 (sugar of Rosa Sy) were negotiated and indorsed to Cresencia K. Zoleta. Zoleta
and Ramos then used the quedans as security for loans obtained by them from the
Philippine National Bank (PNB) in the amounts of P23.5 million and P15.6 million,
respectively. These quedans they indorsed to the bank.
Both Zoleta and Ramos failed to pay their loans upon maturity on January 9, 1990.
Consequently on March 16, 1990, PNB wrote to Noah's Ark Sugar Refinery (hereafter, simply
Noah's Ark) demanding delivery of the sugar covered by the quedans indorsed to it by
Zoleta and Ramos. When Noah's Ark refused to comply with the demand, PNB filed with the
Regional Trial Court of Manila a verified complaint for "Specific Performance with Damages
and Application for Writ of Attachment" against Noah's Ark, Alberto T. Looyuko, Jimmy T. Go,
and Wilson T. Go, the last three being identified as "the Sole Proprietor, Managing Partner
and Executive Vice President of Noah's Ark, respectively."
The Court, by Order dated June 28, 1990, denied the application for preliminary attachment
after conducting a hearing thereon. It denied as well the motion for reconsideration
thereafter filed by PNB, by Order dated August 22, 1990.
Noah's Ark and its co-defendants then filed their responsive pleading entitled "Answer with
Counterclaim and Third Party Complaint," dated June 21, 1990 in which they claimed, inter
alia, that they "are still the legal owners of the subject quedans and the quantity of sugar
represented thereon," a claim founded on the following averments, to wit:
. . . In an agreement dated April 1, 1989, defendants agreed to sell to Rosa Ng
Sy of RNS Merchandising and Teresita Ng of St. Therese Merchandising the
total volume of sugar indicated in the quedans stored at Noah's Ark Sugar
Refinery for a total consideration of P63,000,000.00, . . . The corresponding
payments in the form of checks issued by the vendees in favor of defendants
were subsequently dishonored by the drawee banks by reason of "payment
stopped" and "drawn against insufficient funds," . . . Upon proper notification
to said vendees and plaintiff in due course, defendants refused to deliver to
vendees therein the quantity of sugar covered by subject quedans.
. . . Considering that the vendees and first indorsers of subject quedans did
not acquire ownership thereof, the subsequent indorsers and plaintiff itself did
not acquire a better right of ownership than the original vendees/first
indorsers.
The defendants also adverted to PNB's supposed awareness "that subject quedans are not
negotiable instruments within the purview of the Warehouse Receipts Law but simply an
internal guarantee of defendants in the sale of their stocks of sugar. . . ."
The answer incorporated a third party complaint by Alberto Looyuko, Jimmy T. Go and Wilson
T. Go ("doing business under the name and style of Noah's Ark Sugar Refinery") against Rosa
Ng Sy and Teresita Ng, praying that the latter be ordered to deliver or return to them the
quedans (eventually indorsed to the PNB and now subject of this suit) and pay damages and
litigation expenses.
The answer of Rosa Ng Sy and Teresita Ng, dated September 6, 1990, was essentially to the
effect that the transaction between them and Jimmy T. Go concerning the quedans and the

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sugar thereby covered was "bogus and simulated (being part of the latter's) complex
banking schemes and financial maneuvers;" that the simulated transaction "was just a
tolling scheme to
avoid VAT payment and other BIR assessments (considering that) as . . . confidentially
intimated (by said Jimmy Go) . . . Noah's Ark is under sequestration by the PCGG," and that
the quedans "were in fact used by Noah's Ark Executive Director, Luis T. Ramos, and one
Cresenciana K. Zoleta as security for their loans from the bank . . . . (in the aggregate
amount) of P39.1 million pesos."
On January 31, 1991, PNB filed a "Motion for Summary Judgment." It asserted that "from the
pleadings, documents, and admissions on file, there is no genuine issue as to a material fact
proper for trial and that plaintiff is entitled as a matter of law, . . . (to) a summary judgment."
It contended that the defenses set up by Noah's Ark, et al. in their responsive pleading
involve purely questions of law i.e., (a) that the vendees of the sugar covered by the
quedans in dispute never acquired title to the goods because of their failure to pay the
stipulated purchase price and hence, ownership over the sugar was retained by Noah's Ark,
et al.; and (b) PNB's action is premature since as pledgee it failed to exercise the remedies
provided in the contract of pledge and the Civil Code. And it specified in no little detail the
admissions and documents on record demonstrating the absence of any genuine factual
issue. On these premises, it prayed "that a summary judgment be rendered for plaintiff
against the defendants for the reliefs prayed for in the complaint," these reliefs being:
(a) to deliver to PNB the sugar stocks covered by the Warehouse
Receipts/Quedans which are now in the latter's possession as holder for value
and in due course; or alternatively, to pay plaintiff actual damages in the
amount of P39.1 Million exclusive of interest, penalties and charges; and
(b) to pay plaintiff attorney's fees, litigation expenses and judicial costs
estimated at no less than P1 Million; (and) such other reliefs just and equitable
under the premises.
An opposition to the motion was presented by defendants Noah's Ark, et al., dated March 4,
1991, asserting the existence of genuine issues, to wit: whether or not the sale was ever
consummated considering that "the checks issued by the first indorsees in payment of said
quedans bounced," and whether or not PNB acquired ownership over the quedans
considering that "it did not dispose (of) said quedans under Art. 2112 of the Civil Code, as
specifically reflected in the contract of pledge," both contentions allegedly being "material
facts which has (sic) to be supported by evidence."
The third-party defendants (Rosa Ng Sy and Teresita Ng) also opposed the motion for
summary judgment insofar as concerned their counterclaim in relation to the third-party
complaint asserted against them.
On May 2, 1991, the Trial Court issued an Order denying the motion for summary judgment
on the ground that an "examination of the pleadings and the record readily shows that there
exists sharply conflicting claims among the parties relative to the ownership of the sugar
quedans as to whether or not the subject quedans falls (sic) squarely within the coverage of
the Warehouse Receipt Law and whether or not the transaction between plaintiff and third
party defendants is governed by contract of pledge that would require plaintiff's compliance
with Art. 2112, Civil Code on pledge as regards the disposition of the subjects quedans."
PNB's for reconsideration was denied by Order dated July 4, 1991.
PNB thereupon filed a petition for certiorari with the Court of Appeals, which was docketed
as CA-G.R. SP No. 25938. This special civil action eventuated in a Decision promulgated on
December 13, 1991 by the Sixth Division of that Court, 1 nullifying and setting aside the
challenged Orders of May 2, 1991 and July 4, 1991, and commanding that "summary

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judgment be rendered forthwith in favor of the PNB against Noah's Ark Sugar Refinery, et al.,
as prayed for in petitioner's Motion for Summary Judgment." Said the Appellate Court: 2
In issuing the questioned Orders, the respondent Court ruled that "questions
of law should be resolved after and not before, the questions of fact are
properly litigated." A scrutiny of defendants' affirmative defenses does not
show material questions of facts as to the alleged non-payment of purchase
price by the vendees/first indorsers, and which non-payment is not disputed
by PNB as it does not materially affect PNB's title to the sugar stock as holder
of the negotiable quedans.
What is determinative of the propriety of summary judgment is not the
existence of conflicting claims for prior parties but whether from an
examination of the pleadings, depositions, admissions and documents on file,
the defenses as to the main issue do not tender material questions of fact
(see Garcia vs. Court of Appeals 167 SCRA 815) or the issues thus tendered
are in fact sham, fictitious, contrived, set up in bad faith or so unsubstantial as
not to constitute genuine issues for trial. (See Vergara vs. Suelto, et al., 156
SCRA 753; Mercado, et al. vs. Court of Appeals, 162 SCRA 75). The questioned
Orders themselves do not specify what material facts are in issue. (See Sec. 4,
Rule 34, Rules of Court).
To require a trial notwithstanding pertinent allegations of the pleadings and
other facts appearing on record, would constitute a waste of time and an
injustice to the PNB whose rights to relief to which it is plainly entitled would
be further delayed to its prejudice.
In issuing the questioned Orders, We find the respondent Court to have acted
in grave abuse of discretion which justify holding null and void and setting
aside the Orders dated May 2 and July 4, 1990 of respondent Court, and that a
summary judgment be rendered forthwith in favor of the PNB against Noah's
Ark Sugar Refinery, et al., as prayed for in the petitioner's Motion for
Summary Judgment.
SO ORDERED.
Noah's Ark, et al. moved for reconsideration, but their motion was denied by the Appellate
Tribunal's Resolution dated March 6, 1991.
The judgment became final. Entry of Judgment was made on May 26, 1992. Thereafter the
case was remanded to the Court of origin.
On June 18, 1992, the Regional Trial Court rendered judgment, but not in accordance with
the aforesaid decision of the Court of Appeals. As stated in the opening paragraph of this
opinion, instead of a summary judgment "in favor of the PNB against Noah's Ark Sugar
Refinery, et al., as prayed for in . . . (PNB)'s Motion for Summary Judgment," the Trial Court's
verdict decreed the dismissal of "plaintiff's complaint against defendants Noah's Ark Sugar
Refinery, Alberto T. Looyuko, Jimmy Go and Wilson T. Go . . . . for lack of cause of action;"
and dismissal as well of the counterclaim pleaded by the latter against PNB, and of the thirdparty complaint, and the third-party defendant's counterclaim.
The Trial Court declared that if "the only material facts established on the basis of the
pleadings, documentary evidence on record, admissions and stipulations during the hearing
on PNB's application for a writ of preliminary attachment, are the facts as alleged by plaintiff
and accepted as established by the Court of Appeals, this Court will have no difficulty in
finding for plaintiff as prayed for in its motion for summary judgment. But are the facts

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alleged by plaintiff the only material facts established on the basis of the pleadings,
documentary evidence on record, stipulations and admissions during the proceedings on the
application for a writ of preliminary attachment?" To this question the Trial Court gave a
negative answer, it being its view that other facts, "as alleged by defendants . . . (and) not
disputed by PNB, have been likewise established."
The Trial Court later denied PNB's motion for reconsideration (by Order dated September 4,
1992), evidently finding merit in the argument of Noah's Ark, et al., therein quoted, that
"Certiorari as a mode of appeal involves the review of judgment, award of final order on the
merits, while the original action for certiorari and as a special civil action is generally
directed against an interlocutory order of the Court, prior to an appeal from the judgment of
the main case which in the case at bar is specific performance . . ."
Hence, this appeal.
In CA-G.R. SP No. 25938 above mentioned, after an extensive review of the entire record of
the case before the Regional Trial Court (including the admissions of Noah's Ark, et al. and
the parties' stipulations of fact), as well as the pleadings filed by the parties before it, the
Court of Appeals arrived at the conclusion that a summary judgment was proper since "there
was no substantial controversy on a(ny) material fact, the only issues for the Court's
determination . . . (being) purely . . . questions of law, as follows:
1) Whether or not the non-payment of the purchase price for
the sugar stock evidenced by the quedans, by the original
depositors/ vendees (RNS Merchandising and St. Therese
Merchandising) rendered invalid the negotiation of said quedans
by vendees/first indorsers to indorsers (Ramos and Zoleta) and
the subsequent negotiation of Ramos and Zoleta to PNB.
2) Whether or not PNB as indorsee/ pledgee of quedans was
entitled to delivery of sugar stocks from the warehouseman,
Noah's Ark."
These legal questions were disposed of by the Appellate Court as follows:
The validity of the negotiation by RNS Merchandising and St. Therese
Merchandising to Ramos and Zoleta, and by the latter to PNB to secure a loan
cannot be impaired by the fact that the negotiation between Noah's Ark and
RNS Merchandising and St. Therese Merchandising was in breach of faith on
the part of the merchandising firms or by the fact that the owner (Noah's Ark)
was deprived of the possession of the same by fraud, mistake or conversion of
the person to whom the warehouse receipt/quedan was subsequently
negotiated if (PNB) paid value therefor in good faith without notice of such
breach of duty, fraud, mistake or conversion. (See Article 1518, New Civil
Code). And the creditor (PNB) whose debtor was the owner of the negotiable
document of title (warehouse receipt) shall be entitled to such aid from the
court of appropriate jurisdiction attaching such document or in satisfying the
claim by means as is allowed by law or in equity in regard to property which
cannot be readily attached or levied upon by ordinary process. (See Art. 1520,
New Civil Code). If the quedans were negotiable in form and duly indorsed to
PNB (the creditor), the delivery of the quedans to PNB makes the PNB the
owner of the property covered by said quedans and on deposit with Noah's
Ark, the warehouseman. (See Sy Cong Bieng & Co. vs. Hongkong & Shanghai
Bank Corp., 56 Phil. 598).

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In the case at bar, We found that the factual bases underlying the defendant's
affirmative defenses (upon which PNB has moved for summary judgment) are
not disputed and have been stipulated by the parties and therefore do not
require presentation of evidence. PNB's right to enforce the obligation of
Noah's Ark as a warehouseman, to deliver the sugar stock to PNB as holder of
the quedans, does not depend on the outcome of the third-party complaint
because the validity of the negotiation transferring title to the goods to PNB as
holder of the quedans is not affected by an act of RNS Merchandising and St.
Therese Merchandising, in breach of trust, fraud or conversion against Noah's
Ark.
The Court considers the Appellate Court's conclusions of fact and law to be correct.
The Trial Judge's argument that the Appellate Court's decision failed to take account of other
"material facts established on the basis of the pleadings, documentary evidence on record,
stipulations and admissions during the proceedings on the application for a writ of
preliminary attachment," is quite transparently specious. For the matters cited by His Honor,
as allegedly not examined by the Court of Appeals, were in fact duly considered by the latter
i.e., that "the various postdated checks issued by the buyers (RNS Merchandising and St.
Therese Merchandising) in favor of Noah's Ark were dishonored when presented for payment
. . (and hence) the buyers never acquired title to the sugar evidenced by the quedans," 3
and that PNB "did not follow the procedure stated in Article 2112 of the Civil Code." 4 In its
decision, as just pointed out, the Court of Appeals explicitly ruled that the "validity of the
negotiation" of the quedans to PNB" cannot be impaired by the fact that the negotiation
between Noah's Ark and RNS Merchandising and St. Therese Merchandising was made in
breach of faith on the part of the merchandising firms or by the fact that the owner (Noah's
Ark) was deprived of the possession of the same by fraud, mistake or conversion . . ." 5 It
also ruled that the quedans were negotiable documents and had been duly negotiated to the
PNB which thereby acquired the rights set out in Article 1513 of the Civil Code," 6 viz.:"
(1) Such title to the goods as the person negotiating the documents 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.
The Court of Appeals found correctly that the indications in the pleadings to the contrary
notwithstanding, no substantial triable issue of fact actually existed, and that certain issues
raised in answer, even if taken as established, would not materially change the ultimate
findings relative to the main claim. 7 Its decision is entirely in accord with this Court's rulings
regarding the propriety of summary judgments invoked by the Appellate Tribunal, i.e.,
Vergara, Sr. v. Suelto, 8 and Mercado v. Court of Appeals. 9 According to Vergara, for
instance, "even if the answer does tender issues and therefore a judgment on the
pleadings is not proper a summary judgment may still be rendered on the plaintiff's
motion if he can show to the Court's satisfaction that "except as to the amount of damages,
there is no genuine issue as to any material fact," 10 that is to say, the issues thus tendered
are not genuine, are in other words sham, fictitious, contrived, set up in bad faith, patently
unsubstantial. 11 The determination may be made by the Court on the basis of the pleadings,
and the depositions, admissions and affidavits that the movant may submit, as well as those
which the defendant may present in turn." 12
In any event, the conclusions of fact and law set out in the Appellate Court's decision are
undeniably binding on all the parties to the case, the respondent Regional Trial Judge

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included. Having been rendered by a competent court within its jurisdiction, and having
become final and executory, the decision now operates as the immutable law among the
parties, the respondent Trial Judge included; it has become the law of the case and may no
longer, in subsequent proceedings, be altered or modified in any way, much less reversed or
set at naught, by the latter, or any other judge, not even by the Supreme Court; it is an
unalterable determination of the propriety of a summary judgment in the action in question,
and upon all the issues therein raised or which could have been raised relative to the merits
of said action. 13
The Trial Judge may not evade compliance with the final judgment of the Court of Appeals on
the theory that the latter had acted only on a mere interlocutory order (the order denying
PNB's motion for summary judgment), while he had subsequently adjudged the action for
specific performance on the merits. Quite obvious is that the Court of Appeals had decided
that a summary judgment was proper in said action of specific performance, that this was in
truth a determination of the merits of the suit, that that decision had become final and
executory, and that the decision expressly commanded His Honor to render such a
judgment. Under the circumstances, the latter's duty was clear and inescapable.
It was not within the Trial Judge's competence or discretion to take exception to, much less
overturn, any of the factual or legal conclusions laid down by the Court of Appeals in its
verdict. He was as much bound thereby as the private parties themselves. His only function
was to implement and carry out the Appellate Tribunal's judgment. It was an act of
supererogation, of presumptuousness, on His Honor's part to disregard the Court's clear and
categorical command, and to dispose of the case in a manner diametrically opposed thereto.
In doing so, the Trial Judge committed grave error which must forthwith be corrected.
WHEREFORE, the Trial Judge's Decision in Civil Case No. 90-53023 dated June 18, 1992 is
REVERSED and SET ASIDE and a new one rendered conformably with the final and executory
Decision of the Court of Appeals in CA-G.R. SP No. 25938, ordering the private respondents,
Noah's Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and William T. Go, jointly and
severally:
a) to deliver to the petitioner Philippine National Bank, "the sugar stocks covered by the
Warehouse Receipts/Quedans which are now in the latter's possession as holder for value
and in due course; or alternatively, to pay (said) plaintiff actual damages in the amount of
P39.1 Million," with legal interest thereon from the filing of the complaint until full payment;
and
b) to pay plaintiff Philippine National Bank attorney's fees, litigation expenses and judicial
costs hereby fixed at the amount of one hundred fifty thousand pesos (150,000.00), as well
as the costs.
SO ORDERED.
Padilla, Regalado, Nocon and Puno, JJ., concur.

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G.R. No. L-16510
January 9, 1922
PHILIPPINE NATIONAL BANK, plaintiff-appellant,

vs.
PRODUCERS' WAREHOUSE ASSOCIATION, defendant-appellee.
Roman Lacson for appellant.
Ross & Lawrence and Ewald E. Selph for appellee.
JOHNS, J.:
The plaintiff is a corporation organized under the banking laws of the Philippine Islands with
its principal office in the city of Manila. The defendant is a domestic corporation doing a
general warehouse business and domiciled at Manila, and the Philippine Fiber and Produce
Company, to which we will hereafter refer as the Produce Company, is another domestic
corporation with its principal office also at Manila. In May, 1916, the defendant, as party of
the first part, entered into a written contract with the Produce Company, as party of the
second part, in and by which "the above-named party of the second part is hereby named,
constituted, and appointed as the general manager of the business of the party of the first
part, in all of the branches thereof, with the duties, powers, authority and compensation
hereinafter provided." "The said party of the second part shall exercise a general and
complete supervision over and management of the business of the party of the first part,"
and "shall direct, manage, promote and advance the said business, subject only to the
control and instructions of the board of directors of the party of the first part." That said
party of the second part, as general manager, shall have all powers and authorities
necessary, proper or usual for the due transaction of the business of the party of the first
part, including the power to sign the company's name, save and except such power or
authority as shall have been expressly reserved to itself, by the board of directors of the
party of the first part, provided "that such reservations by the board of directors shall not be

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employed to unreasonably hamper or interfere with the due management of said business
and shall, at no time, reduce the powers and authorities of said general manager below the
usual and ordinary standard in business of like kind." It is then agreed that the Produce
Company shall have an annual salary of P7,500 for its services as general manager, and that
the defendant will also pay the local agents of the Produce Company P300 per month for
their services. The agreement also provides that it shall remain in force and effect ten years
from date, with the right of the Produce Company to renew it for a further period of one to
ten years at its option. In the months of November and December, 1918, and while the
contract was in force and effect, the defendant duly issued to the Produce Company its
negotiable quedans Nos. 1255, 1266, 1273, 1275, 1277, 1279, and 1283 for 15,699.34
piculs of copra in and by which, subject to the terms and conditions therein stated, it agreed
to deliver that amount of copra to the Produce Company or its order.
Section 4 of the conditions printed on the back provides:
This Association will deliver the package, noted hereon, on surrender to the
Association of this warrant endorsed by the party who shall be for the time registered
in the books of the Association as the owner of the packages described hereon; and
the production by the Association of this warrant shall at all times be conclusive proof
that the packages hereon noted have been properly delivered by the Association and
shall exempt the Association from all responsibility in connection with the said
packages or goods.
Section 5 provides:
No transfer of interest and/or ownership will be recognized by the Association unless
registered in the books of the Association, and/or all charges for storage and/or
insurance due to the Association paid. Such storage and/or insurance shall constitute
a lien against the packages herein noted until paid and aid package shall remain
undelivered until such lien or lien is/are satisfied.
Each quedan gave the number of sack, piculs, warehouse number, gross weight in kilos and
its declared value, and recited thereon that the copra was insured for the full amount of its
declared value, and across the face of the quedan were the words "Negotiable Warrant" in
red ink. They were all of the printed form entitled "Producers' Warehouse Association." Each
recited in red ink "This warrant is of no value unless signed by an officer of the Association,"
and were signed "Producers' Warehouse Association by George B. Wicks, Treasurer, and
Producers' Warehouse Association by R. Torres, Warehouseman." Each receipt was also
numbered, and stated the number of the warehouse and where situated, and recited that
storage charges were at the rate of P0.04 per picul per month, and that the insurance rate
was 1/3 per cent per month on the declared value.
The Produce Company arranged for an overdraft with the plaintiff of P1,000,000. To secure
such overdraft, and as collateral from and after the dates of their issuance, the quedans in
question were endorsed in blank by the Produce Company, and delivered to the plaintiff,
which became and is now the owner and holder thereof. Without making a tender of any
charges, on March 21, 1919, the plaintiff requested the delivery of the copra described in the
respective quedans, and, for its failure to do so, commenced this action on April 23, 1919, to
recover its value alleged to be P240,689, with interest from March 21, 1919, at the rate of 6
per cent per annum. July 10, 1919, an amended complaint was filed, and on August 9, 1919,
a second amended complaint was filed, in which it is alleged that, in good faith, the plaintiff
purchased these quedans, and that it is the owner, and recites all of the conditions printed
on the back, and made a part of the quedans. It is then alleged that on July 30, 1919, the
plaintiff requested the defendant to register the quedans in the name of the plaintiff, and to
deliver to it the 14,587.19 piculs of copra, and, upon that date, that it had offered to satisfy
any lien that defendant might have, to surrender the receipts with such indorsement that it
might require, and the receipt therefor, when the goods were delivered, if such signature is

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requested by the defendant. "That the defendant refused to comply with the demands of the
plaintiff, stating that it could not deliver the goods mentioned in the receipts as said goods
are not in the warehouse, said defendant still refusing to make such delivery." That on July
30, 1919, copra was of the value of P21 per picul. That by reason of such refusal, plaintiff
has been damaged in the amount of P306,330.99. It is also alleged that in January, 1919,
with the consent of the plaintiff, the Produce Company removed from the warehouse of the
defendant 1,112.15 piculs of copra described in receipt No. 1255, of the declared value of
P18,350.
For amended answer, the defendant admits that the Produce Company deposited copra in
defendant's warehouse, and that warehouse receipts were issued therefor to the Produce
Company, "signed by one George B. Wicks and one R. Torres, but denies that either of the
said George B. Wicks or the said R. Torres had any authority to issue such receipts in the
name of the defendant," or that the receipts set out in plaintiff's complaint are complete and
correct copies of those issued, and, as a further answer and defense, pleads that at the time
alleged, the Produce Company was the manager of the defendant's warehouse; that all the
copra deposited by the Produce Company "in the defendant's warehouse" was, by and with
the consent and knowledge of plaintiff, sold and delivered to the Laguna Cocoanut Oil
Company, and all the proceeds thereof deposited to the account of the said Philippine Fiber
and Produce Company with plaintiff, before the filing of the said second amended complaint;
that by and with the consent of plaintiff, said delivery was made by the Philippine Fiber and
Produce Company, the manager of the defendant's warehouse, without the surrender of the
receipts referred to in the complaint; that said receipts were issued without defendant's
authority, as hereinbefore set out; that said receipts were never transferred to plaintiff on
the books of defendant, as provided in the terms thereof; and that they were issued without
the copra described therein being deposited in the defendant's warehouse. Testimony was
taken on such issues during which the plaintiff offered in evidence the described quedans as
Exhibits C to I, inclusive, and the defendant admitted that the signature appearing on the
lower left-hand corner of each exhibit is the signature of George B. Wicks, and that at the
time he signed the quedans "he was the duly elected, qualified and appointed treasurer of
defendant," that the signature on the lower right-hand corner of each quedan was signed by
R. Torres; and that he was a warehouseman of the defendant at the time, and in the employ
of the Produce Company. After the taking of testimony, the lower court rendered judgment
for the defendant, from which the plaintiff appeals, claiming in substance that the court
erred in not giving plaintiff judgment for the full amount prayed for in its complaint.
On March 21, 1919, the plaintiff notified the defendant that the Produce Company had
endorsed to plaintiff the above described quedans, and asked that it should be informed "as
to when we can take possession of the goods represented by the above quedans." This was
answered by a letter from the secretary and attorney for the defendant, known in the record
as Exhibit B, and which the trial court refused to receive in evidence. But it does appear from
the record that in response to that letter, the then secretary and attorney for the defendant
went to the bank, and that the only matter which was then and there discussed between the
parties was the amount which the defendant should pay the plaintiff for the copra that it
could not deliver. That nothing was ever said about the lien or the surrender of the quedans,
or that the receipts should be signed for the copra when delivered. It also appears that on
the 30th of July, after the court sustained the demurrer to the complaint, the attorney for the
bank went direct to the defendant and then offered to pay any lien or charges that it might
have on the quedans, and offered it all the quedans indorsed in blank by the Produce
Company, and "to place on them any indorsement that would make them negotiable," and
to sign for the bank the receipts for the copra when delivered. That Mr. Wicks, who was then
acting for the defendant, refused to take up the quedans, stating that the copra which they
represented was not in the warehouse, and that "we cannot give you the copra because it is
not there." The bank's attorney then had the quedans with him and exhibited them to Mr.
Wicks. It further appears that on July 29, 1919, and in answer to its letter of the 28th, the
Produce Company wrote the defendant as follows:

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We regret to state that we are unable to return to you the warrant referred to in your
letter for the reason that, in December, 1918, we deposited these warrants with the
Philippine National Bank as security for loans and said bank refuses to return same to
us. As all the copra, less shrinkage and other losses, has been delivered by you, we
hereby authorize you to cancel such warrants and hereby agree to hold you free and
harmless for so doing.
The attorney further testified: "I have seen the overdraft agreement and, if I remember right,
it was for a million pesos." The Produce Company "signed one of the printed forms of the
bank for overdraft agreement." When plaintiff rested, the defendant moved for judgment
against the plaintiff for want of sufficient evidence. The motion was denied and exception
duly taken. The defendant then called J. Mclaughlin, who, as a public accountant, audited the
books of the Produce Company for the period of six months ending December 31, 1918. A
copy of his report made from the books of the Produce Company was offered in evidence,
from which it appears that on December 31, 1918, it owed the plaintiff P887,856.66. George
E. Kauffman testified that he was president of both the defendant and the Produce Company
and held that position in October, 1916, at the time the contract was made between the two
companies. That it was voluntarily surrendered and cancelled in April, 1919, also that the
contract was duly ratified by the director of both corporations, and after its ratification, the
Produce Company assumed the active management of defendant's business, under the
terms and provisions of the contract. He also testified that Mr. Lacson presented quedans for
a certain amount of copra to Mr. Wicks, and asked for the delivery of the copra. Mr. Wicks
told Mr. Lacson "the copra did not exist because the copra has been delivered by the
Philippine Fiber and Produce Company." Mr. Kauffman further testified that he owned 98 per
cent of the capital stock of the Produce Company, and that Mr. Wicks had only one share.
Q. What was the balance show by your books? A. I reserve the right, in answering
these questions, because I am not prepared to answer in amounts. They run into
large amounts of money.
A. I can say what caused the controversy, and that is that the bank showed an
overdraft of some five hundred and some odd thousand pesos as to the Philippine
Fiber and Produce Company, while my books show an overdraft of some hundred and
thirty-nine thousand pesos, caused by the fact that I have charged the Philippine
National Bank with the entire expenditure for the purchase of hemp made for their
account and risk during the year of 1918. I have so notified the bank, but they
haven't seen fit to reply to my letter.
He further testified that Mr. Wicks was treasurer of the defendant at the time the quedans
were issued, and that the printed forms used are like those held by the bank.
Q. And they have been from the very beginning, haven't they? A. Yes, sir.
Mr. Wicks testified that he was vice-president of the Produce Company from October, 1916,
until February, 1919, and that he was treasurer of the company "from July 1, 1917, up until
this year." He further testified that R. Torres was actually in charge of the warehouse itself,
and that the Produce Company was managing the warehouse. That it was selling copra
between December 1, 1918, and February 1, 1919, and that the proceeds were deposited in
the Philippine National Bank; that during that period the warehouse receipts were
hypothecated with the plaintiff; that under the practice at the end of each week, the
warehouse would notify him of the amount of copra delivered; and that "I would then
withdraw from the Philippine National Bank the corresponding number of warrant for
cancellation. Sometimes I would go personally and withdraw them; and at other times I
would send the cashier down with a note to the Philippine National Bank, asking them to
release these warrants for cancellation." The warehouse receipts were delivered to me
regularly "until about the end of January or early in February." This procedure was a matter
of convenience to both parties.

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Q. What reason did you give to Philippine National Bank for not delivering the copra
to Mr. Lacson, or any other representative of the bank? A. The reason was that the
copra was not in the warehouse; having been delivered to its owners.
Q. While you were treasurer of the Producers' Warehouse Association, all the quedans
issued by the warehouse were signed by you as treasurer, were they not? A. Yes,
sir.
Q. Even by Mr. Kauffman now haven't they? A. So far as I know, they have.
The record shows that Mr. Kauffman was absent from about March 15, 1918, until May, 1919.
Q. And during that period you had full authority to act for the Philippine Fiber and
Produce Company? A. Yes.
Q. Was that authority ever questioned by anyone; by Mr. Kauffman or anyone? A.
Not to my knowledge.
The testimony is conclusive that the quedans in question were duly executed by Wicks, as
treasurer, and Torres, as warehouseman, for and on behalf of the defendant, and as its act
and deed. That it appears from its own books that on December 31, 1918, the Produce
Company was indebted to the plaintiff in the sum of P887,856.66, and Mr. Kauffman,
president of the defendant, testified that the Produce Company had an indebtedness; "they
run into large amounts of money." The testimony is also conclusive that amounts money."
The testimony is also conclusive that after the quedans described in the complaint were
issued to the Produce Company, they were endorsed in blank, and physical possession
delivered to the plaintiff as collateral security for the overdraft of the Produce Company, and
that each of them is in form negotiable.
That on March 21, 1919, plaintiff notified the defendant of such facts and requested the
delivered of the copra. At that time no claim was made on account of conditions, liens or
charges, and the plaintiff did not offer to pay the charges or comply with the conditions, and
the only question discussed was the amount of copra to which plaintiff was entitled. In July,
1919, and after the sustaining of the defendant's demurrer to the complaint, plaintiff, for the
first time, made a formal tender of all such conditions, and then filed its second amended
complaint in which tenders were alleged. In its answer, the defendant denies that Wicks and
Torres had any authority to issue the quedans for, or in the name of, the defendant, and, as
further and separate defense, alleges that the Produce Company was the manager of the
defendant's warehouse, and that all copra deposited in it by the Produce Company was, with
the knowledge and consent of plaintiff, sold to the Laguna Cocoanut Oil Company, and the
proceeds of the sale were duly deposited with the plaintiff to the account of the Produce
Company, before the filing of the second amended complaint; that with the consent of the
plaintiff, delivery was made by the Produce Company, as manager of the defendant's
warehouse, without the surrender of the quedans described in the complaint; that such
receipts were issued without authority and they were never transferred to the plaintiff on the
books of the defendant corporation; and that they "were issued without the copra described
therein being deposited in defendant's warehouse." The defendant, having alleged that the
quedans were invalid and wrongfully issued, and that the copra therein described was not in
defendant's warehouse, is now estopped do claim or assert that the plaintiff did not comply
with any conditions precedent. In this kind of an action, a person has no legal right to deny
the existence of the instruments on which it is based, and then claim that plaintiff has not
complied with the provisions of the instruments. This question is squarely decided in Wyatt
vs. Henderson (31 Ore., 48; 48 Pac., 790), where the court says:
. . . The only possible object defendants could have had in seeking to show that
storage was due on this grain was to insist upon the maintenance of a statutory lien

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thereon, under which they expected to hold the oats until their charges had been
paid, and thus defeat the action for the recovery of possession; but, by denying the
plaintiff's ownership, the lien given by statute was waived, and the title to and the
quantity of the grain being the only issues for trial, the amount due for storage was
immaterial. . . .
This case was again followed and approved in Anderson vs. Portland Flouring-Mills Co. (60
Pac., 839). The same rule is also laid down in Cyc., vol. 38, p. 135, where it is said:
. . . Similarly a tender is waived where the tenderee makes any declaration which
amounts to a repudiation of the contract, or takes any position which would render a
tender, so long as the position taken by him is maintained, a vain and idle
ceremony. . . .
Ruling Case Law, vol. 26. p. 624, says:
Since the law does not require any one to do vain or useless things, a formal tender is
never required where it appears that if it had been made, the money would not have
been received, as where a creditor states that an actual tender will be useless
because he will not accept it, or where one party to a contract states that he will not
comply with its terms.
. . . Where a contract calls for the performance by the parties of concomitant acts,
neither party being obliged to perform unless the other is ready to perform the
correlative act, a tender is not necessary by the one if the other is not willing to
perform his part. . . . (Citing numerous authorities.)
Again, in the inception of this dispute nothing was ever said about any condition precedent,
or about any claim on account of liens or charges, and it is very apparent that at that time
the defendant did not contemplate any such a defense. When the point was first raised, the
formal tender or offer was promptly made, and the defendant then, for the first time, denied
the authenticity of the quedans, and claimed that they were wrongfully and illegally issued.
If the copra evidence by the quedans was in the bodegas, defendant's contention would be
tenable, but upon the facts shown, the defendant has no legal right to make that defense.
Complaint is made that the quedans were not transferred on the books of the company in
accord with their provisions. Here again, it is shown that the plaintiff produced them and
requested their transfer to the bank, which the defendant requested their transfer to the
bank, which the defendant refused to make. It is not now in a position to urge that point as a
defense.
The stubborn fact remains that, under the written contract between them, the Produce
Company was the general manager of the defendant's warehouse business, and that it had
authority to issue quedans in its name, and as its corporate act and deed. That the quedans
in question are duly authenticated, and were duly issued by the defendant to, and in the
name of, the Produce Company, and when issued were duly endorsed, and delivered to the
plaintiff for value. For aught that appears in the record, the bank was acting in good faith,
and the quedans were duly issued, endorsed and delivered to it as collateral in the ordinary
course of business. Although there may have been fraud, there is no allegation or proof that
the bank was a party to it, or had any knowledge of it, and this court has no right to assume
that the bank was a party to a fraud. Giving to the quedans their legal force and effect, it
must follow that at the time the demand was made, the bank was the owner and entitled to
the possession of the copra therein described. The receipts call for 15,699.34 piculs of copra,
but plaintiff admits that, with its consent, 1,112.15 piculs of copra, of the declared value of
P18,350, were delivered to the Produce Company from and out of receipt No. 1255. This
would leave 14,587.19 piculs of copra evidenced by the quedans.

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As in the case of the Philippine Trust Company vs. Philippine National Bank,1 recently
decided, there is no direct evidence of the market value of the copra. But each quedan
specified the amount of its declared value. That being specified in the quedans, in the
absence of other proof, and upon the fact shown, the declared value will be deemed and
treated as the market value. Deducting the 1,112.15 piculs, which were surrendered by the
plaintiff out of quedan No. 1255, the declared value of the copra remaining was P240,689.
The decision of the lower court is reversed, and judgment will be entered here in favor of the
plaintiff and against the defendant for P240,689, with interest thereon from March 21, 1919,
at the rate of 6 per cent per annum, and costs in this and the lower court. So ordered.
Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor and Romualdez, JJ., concur.
G.R. No. L-11776
August 30, 1958
RAMON GONZALES, plaintiff-appellee,

vs.
GO TIONG and LUZON SURETY CO., INC., defendants-appellants.
Rustico V. Nazareno for appellee.
David, Abel and Ysip for appellant Go Tiong.
Tolentino, Garcia and D. R. Cruz for appellant Luzon Surety Co., Inc.
MONTEMAYOR, J.:

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Defendants Go Tiong and Luzon Surety Co. are appealing from the decision of the Court of
First Instance of Manila, Judge Magno S. Gatmaitan presiding, the dispositive part of which
reads as follows:
In view whereof, judgment is rendered condemning defendant Go Tiong and Luzon
Surety Co., jointly and severally, to pay plaintiff the sum of P4,920 with legal interest
from the date of the filing of the complaint until fully paid; judgment is also rendered
against Go Tiong to pay the sum of P3,680 unto plaintiff, also with legal interest from
the date of the filing of the complaint until fully paid. Go Tiong is also condemned to
pay the sum of P1,000 as attorney's fees, plus costs.
The appeal was first taken to the Court of Appeals, the latter indorsing the case to us later
under the provisions of Section 17 (6) of Republic Act No. 296, on the ground that the issues
raised were purely questions of law.
Go Tiong owned a rice mill and warehouse, located at Mabini, Urdaneta, Pangasinan. On
February 4, 1953, he obtained a license to engage in the business of a bonded
warehouseman (Exhibit N). To secure the performance of his obligations as such bonded
warehouseman, the Luzon Surety Co. executed Guaranty Bond No. 294 in the sum of
P18,334 (Exhibit O), conditioned particularly on the fulfillment by Go Tiong of his duty or
obligation to deliver to the depositors in his storage warehouse, the palay received by him
for storage, at any time demand is made, or to pay the market value thereof, in case he was
unable to return the same. The bond was executed on January 26, 1953. Go Tiong insured
the warehouse and the palay deposited therein with the Alliance Surety and Insurance
Company.
But prior to the issuance of the license to Go Tiong to operate as bonded warehouseman, he
had on several occasions received palay for deposit from plaintiff Gonzales, totaling 368
sacks, for which he issued receipts, Exhibits A, B, C, and D. After he was licensed as bonded
warehouseman, Go Tiong again received various deliveries of palay from plaintiff, totaling
492 sacks, for which he issued the corresponding receipts, all the grand total of 860 sacks,
valued at P8,600 at the rate of P10 per sack.
On or about March 15, 1953, plaintiff demanded from Go Tiong the value of his deposits in
the amount of P8,600, but he was told to return after two days, which he did, but Go Tiong
again told him to come back. A few days later, the warehouse burned to the ground. Before
the fire, Go Tiong had been accepting deliveries of palay from other depositors and at the
time of the fire, there were 5,847 sacks of palay in the warehouse, in excess of the 5,000
sacks authorized under his license. The receipts issued by Go Tiong to the plaintiff were
ordinary receipts, not the "warehouse receipts" defined by the Warehouse Receipts Act (Act
No. 2137).
After the burning of the warehouse, the depositors of palay, including plaintiff, filed their
claims with the Bureau of Commerce, and it would appear that with the proceeds of the
insurance policy, the Bureau of Commerce paid off some of the claim. Plaintiff's counsel later
withdrew his claim with the Bureau of Commerce, according to Go Tiong, because his claim
was denied by the Bureau, but according to the decision of the trial court, because nothing
came from plaintiff's efforts to have his claim paid. Thereafter, Gonzales filed the present
action against Go Tiong and the Luzon Surety for the sum of P8,600, the value of his palay,
with legal interest, damages in the sum of P5,000 and P1,500 as attorney's fees. Gonzales
later renewed his claim with the Bureau of Commerce (Exhibit S).
While the case was pending in court, Gonzales and Go Tiong entered into a contract of
amicable settlement to the effect that upon the settlement of all accounts due to him by Go
Tiong, he, Gonzales, would have all actions pending against Go Tiong dismissed. Inasmuch
as Go Tiong failed to settle the accounts, Gonzales prosecuted his court action..

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For purposes of reference, we reproduce the assignment of errors of Go Tiong, as well as the
assignment of errors of the Luzon Surety, all reading thus:
I. The trial court erred in finding that plaintiff-appellee's claim is covered by the
Bonded Warehouse Law, Act 3893, as amended, and not by the Civil Code.
II. The trial court erred in not exempting defendant-appellant Go Tiong for the loss of
the palay deposited, pursuant to the provisions of the New Civil Code.".
xxx
xxx
xxx
I. The trial court erred in not declaring that the amicable settlement by and between
plaintiff-appellee and defendant Go Tiong constituted a material alteration of the
surety bond of appellant Luzon Surety which extinguished and discharged its liability.
II. The trial court erred in bolding that the receipts for the palay received by Go Tiong,
though not in the form of "quedans" or warehouse receipts are chargeable against
the surety bond filed under the provisions of the General Bonded Warehouse Act (Act
No. 3893 as amended by Republic Act No. 247) as a result of a loss.
III. The trial court erred in not holding that the plaintiff had renounced and abandoned
his rights under the Bonded Warehouse Act by the withdrawal of his claim from the
Bureau of Commerce and the execution of the "amicable settlement".
IV. The trial court erred in not holding that the palay delivered to Go Tiong constitutes
gratuitous deposit which was extinguished upon the loss and destruction of the
subject matter.
V. The trial court erred in not declaring that the transaction between defendant Go
Tiong and plaintiff was more of a sale rather than a deposit.
VI. The trial court erred in declaring that the Luzon Surety Co., Inc., had not complied
with its undertaking despite the liquidation of all the claims by the Bureau of
Commerce.
VII. The lower court erred in adjudging the herein surety liable under the terms of the
Bond.
We shall discuss the assigned errors at the same time, considering the close relation
between them, although we do not propose to discuss and rule upon all of them. Both
appellants urge that plaintiff's claim is governed by the Civil Code and not by the Bonded
Warehouse Act (Act No. 3893, as amended by Republic Act No. 247), for the reason that, as
already stated, what Go Tiong issued to plaintiff were ordinary receipts, not the warehouse
receipts contemplated by the Warehouse Receipts Law, and because the deposits of palay of
plaintiff were gratuitous.
Act No. 3893 as amended is a special law regulating the business of receiving commodities
for storage and defining the rights and obligations of a bonded warehouseman and those
transacting business with him. Consequently, any deposit made with him as a bonded
warehouseman must necessarily be governed by the provisions of Act No. 3893. The kind or
nature of the receipts issued by him for the deposits is not very material much less decisive.
Though it is desirable that receipts issued by a bonded warehouseman should conform to
the provisions of the Warehouse Receipts Law, said provisions in our opinion are not
mandatory and indispensable in the sense that if they fell short of the requirements of the
Warehouse Receipts Act, then the commodities delivered for storage become ordinary
deposits and will not be governed by the provisions of the Bonded Warehouse Act. Under

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Section 1 of the Warehouse Receipts Act, one would gather the impression that the issuance
of a warehouse receipt in the form provided by it is merely permissive and directory and not
obligatory:
SECTION 1. Persons who may issue receipts. Warehouse receipts may be issued by
any warehouseman.,
and the Bonded Warebouse Act as amended permits the warehouseman to issue any
receipt, thus:
. . . . "receipt" as any receipt issued by a warehouseman for commodity delivered to
him.
As the trial court well observed, as far as Go Tiong was concerned, the fact that the receipts
issued by him were not "quedans" is no valid ground for defense because he was the
principal obligor. Furthermore, as found by the trial court, Go Tiong had repeatedly promised
plaintiff to issue to him "quedans" and had assured him that he should not worry; and that
Go Tiong was in the habit of issuing ordinary receipts (not "quedans") to his depositors.
As to the contention that the deposits made by the plaintiff were free because he paid no
fees therefor, it would appear that Go Tiong induced plaintiff to deposit his palay in the
warehouse free of charge in order to promote his business and to attract other depositors, it
being understood that because of this accommodation, plaintiff would convince other palay
owners to deposit with Go Tiong.
Appellants contend that the burning of the warehouse was a fortuitous event and not due to
any fault of Go Tiong and that consequently, he should not be held liable, appellants
supporting the contention with the ruling in the case of La Sociedad Dalisay vs. De los
Reyes, 55 Phil. 452, reading as follows:
Inasmuch as the fire, according to the judgment appealed from, was neither
intentional nor due to the negligence of the appellant company or its officials; and it
appearing from the evidence that the then manager attempted to save the palay, the
appellant company should not be held responsible for damages resulting from said
fire. . . . .
The trial court correctly disposed of this same contention, thus:
The defense that the palay was destroyed by fire neither does the Court consider to
be good for while the contract was in the nature of a deposit and the loss of the thing
would exempt the obligor in a contract of deposit to return the goods, this exemption
from the responsibility for the damages must be conditioned in his proof that the loss
was by force majeure, and without his fault. The Court does not see from the
evidence that the proof is clear on the legal exemption. On the contrary, the fact that
he exceeded the limit of the authorized deposit must have increased the risk and
would militate against his defense of non-liability. For this reason, the Court does not
follow La Sociedad vs. De Los Santos, 55 Phil. 42 quoted by Go Tiong. (p. 3, Decision).
Considering the fact, as already stated, that prior to the burning of the warehouse, plaintiff
demanded the payment of the value of his palay from Go Tiong on two occasions but was
put off without any valid reason, under the circumstances, the better rule which we accept is
the following:
. . . . This rule proceeds upon the theory that the facts surrounding the care of the
property by a bailee are peculiarly within his knowledge and power to prove, and that
the enforcement of any other rule would impose great difficulties upon the bailors. ...

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It is illogical and unreasonable to hold that the presumption of negligence in case of
this kind is rebutted by the bailee by simply proving that the property bailed was
destroyed by an ordinary fire which broke out on the bailee's own premises, without
regard to the care exercised by the latter to prevent the fire, or to save the property
after the commencement of the fire. All the authorities seem to agree that the rule
that there shall be a presumption of negligence in bailment cases like the present
one, where there is default in delivery or accounting, for the goods is just a necessary
one. . . . (9 A.L.R. 566; see also Hanes vs. Shapiro, 84 S.E. 33; J. Russel Mfg. Co. vs.
New Haven, S.B. Co., 50 N.Y. 211; Beck vs. Wilkins-Ricks Co., 102 S.E. 313, Fleishman
vs. Southern R. Co., 56 S.E. 974).
Besides, as observed by the trial court, the defendant violated the terms of his license by
accepting for deposit palay in excess of the limit authorized by his license, which fact must
have increased the risk.
The Luzon Surety claims that the amicable settlement by and between Gonzales and Go
Tiong constituted a material alteration of its bond, thereby extinguishing and discharging its
liability. It is evident, however, that while there was an attempt to settle the case amicably,
the settlement was never consummated because Go Tiong failed to settle the accounts of
Gonzales to the latter's satisfaction. Consequently, said non-consummated compromise
settlement does not discharge the surety:
A compromise or settlement between the creditor or obligee and the principal, by
which the latter is discharged from liability, discharges the surety, . . . . But an
unconsummated . . . agreement to compromise, falling short of an effective
settlement, will not discharge the surety. (50 C. J. 185)
In relation to the failure of Go Tiong to issue the warehouse receipts contemplated by the
Warehouse Receipts Act, which failure, according to appellants, precluded plaintiff from
suing on the bond, reference may be made to Section 2 of Act No. 3893, defining receipt as
any receipt issued by a warehouseman for commodity delivered to him, showing that the
law does not require as indispensable that a warehouse receipt be issued. Furthermore,
Section 7 of said law provides that as long as the depositor is injured by a breach of any
obligation of the warehouseman, which obligation is secured by a bond, said depositor may
sue on said bond. In other words, the surety cannot avoid liability from the mere failure of
the warehouseman to issue the prescribed receipt. In the case of Andreson vs. Krueger, 212
N.W. 198, 199, it was held:
The surety company concedes that the bond which it gave contains the statutory
conditions. The statute . . . requires that the bond shall be conditioned upon the
faithful performance of the public local grain warehouseman of all the provisions of
law relating to the storage of grain by such warehouseman.
The surety company thereby made itself responsible for the performance by the
warehouseman of all the duties and obligations imposed upon him by the statute;
and, if he failed to perform any such duty to the loss or detriment of those who
delivered grain for storage, the surety company became liable therefor. Where the
warehouseman receives grain for storage and refuses to return or pay it, the fact that
he failed to issue the receipt, when the statute required him to issue on receiving it,
is not available to the surety as a defense against an action on the bond. The
obligation of the surety covers the duty of the warehouseman to issue the prescribed
receipt, as well as the other duties imposed upon him by the statute.
We deem it unnecessary to discuss and rule upon the other questions raised in the appeal.
In view of the foregoing, the appealed decision is hereby affirmed, with costs.

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Paras, C. J., Padilla, Reyes, A., Bautista Angelo, Concepcion, Endencia, Reyes, J.B.L., and
Felix, JJ., concur.
Bengzon, J., concurs in the result.
G.R. No. L-34655
March 5, 1932
SIY CONG BIENG & CO., INC., plaintiff-appellee,

vs.
HONGKONG & SHANGHAI BANKING CORPORATION, defendant-appellant.
DeWitt, Perkins & Brandy for appellant.
Feria & La O for appellee.
OSTRAND, J.:
This action was brought in the Court of First Instance of Manila to recover the sum of
P31,645, the value of 464 bales of hemp deposited in certain bonded warehouses as
evidenced by the quedans (warehouse receipts) described in the complaint, said quedans
having been delivered as pledge by one Otto Ranft to the herein defendant, the Hongkong

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and Shanghai Banking Corporation, for the guarantee of a preexisting debt of the former to
the latter. The record shows that both parties, through their respective counsel, subscriber
and submitted to the court below the following agreement of facts:
STIPULATION OF FACTS
(Translated into English)
Come now the parties, both the plaintiff and the defendant Hongkong &
Shanghai Banking Corporation, through their respective counsel in the above
entitled case, and respectfully submit to the court the following agreed
statements of facts:
1. That both the plaintiff and the defendant Hongkong & Shanghai Banking
Corporation are corporations domicile in the City of Manila and duly
authorized to transact business in accordance with the laws of the Philippine
Islands.
2. That the plaintiff is a corporation engaged in business generally, and that
the defendant Hongkong & Shanghai Banking Corporation is a foreign bank
authorized to engage in the banking business in the Philippines.
3. That on June 25, 1926, certain negotiable warehouse receipts described
below were pledge by Otto Ranft to the defendant Hongkong & Shanghai
Banking Corporation to secure the payment of his preexisting debts to the
latter:
No.
Warehouseman
1707 Public Warehouse Co
Depositor
Bales
Siy Cong Bieng & Co., Inc.
133 W.F. Stevenson Co
27
do
67
do
60
1723
do
do
99
do
1634 The Philippine Warehouse Company

2 Siy Cong Bieng & Co., Inc
1702 The Philippine Warehouse Company
O. Ranft
166
do
Siy Cong Bieng & Co., Inc.
2
39
And that the baled hemp covered by these warehouse receipts was worth P31,635;
receipts number 1707,133,1722, 1723, 1634, and 1702 being endorsed in blank by
the plaintiff and Otto Ranft, and numbers 1918 and 2, by Otto Ranft alone.
4. That in the night of June 25, 1926, said Otto Ranft died suddenly at his
house in the City of Manila.
5. That both parties submit this agreed statement of facts, but reserve their
right to have in evidence upon other points not included herein, and upon
which they cannot come to an agreement.
Manila, August 7, 1929.
The evidence shows that on June 25, 1926, Ranft called at the office of the herein plaintiff to
purchase hemp (abaca), and he was offered the bales of hemp as described in the quedans
above mentioned. The parties agreed to the aforesaid price, and on the same date the
quedans, together with the covering invoice, were sent to Ranft by the plaintiff, without

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having been paid for the hemp, but the plaintiff's understanding was that the payment
would be made against the same quedans, and it appear that in previous transaction of the
same kind between the bank and the plaintiff, quedans were paid one or two days after their
delivery to them.
In the evening of the day upon which the quedans in question were delivered to the herein
defendant, Ranft died, and when the plaintiff found that such was the case, it immediately
demanded the return of the quedans, or the payment of the value, but was told that the
quedans had been sent to the herein defendant as soon as they were received by Ranft.
Shortly thereafter the plaintiff filed a claim for the aforesaid sum of P31,645 in the intestate
proceedings of the estate of the deceased Otto Ranft, which on an appeal form the decision
of the committee on claims, was allowed by the Court of First Instance in case No. 31372
(City of Manila). In the meantime, demand had been made by the plaintiff on the defendant
bank for the return of the quedans, or their value, which demand was refused by the bank
on the ground that it was a holder of the quedans in due course. Thereupon the plaintiff filed
its first complaint against the defendant, wherein it alleged that it has "sold" the quedans in
question to the deceased O. Ranft for cash, but that the said O. Ranft had not fulfilled the
conditions of the sale. Later on, plaintiff filed an amended complaint, wherein they changed
the word "sold" referred to in the first complaint to the words "attempted to sell".
Upon trial the judge of the court below rendered judgment in favor of the plaintiff principally
on the ground that in the opinion of the court the defendant bank "could not have acted in
good faith for the reason that according to the statements of its own witness, Thiele, the
quedans were delivered to the bank in order to secure the debts of Ranft for the payment of
their value and from which it might be deduced that the said bank knew that the value of
the said quedans was not as yet paid when the same were endorsed to it, and its alleged
belief that Ranft was the owner of the said quedans was not in accordance with the facts
proved at the time"; and that, moreover, the circumstances were such that "the bank knew,
or should have known, that Ranft had not yet acquired the ownership of the said quedans
and that it therefore could not invoke the presumption that it was acting in good faith and
without negligence on its part".
In our opinion the judgment of the court below is not tenable. It may be noted, first, that the
quedans in question were negotiable in form; second, that they were pledge by Otto Ranft to
the defendant bank to secure the payment of his preexisting debts to said bank (paragraph
3 of the Stipulation of Facts); third, that such of the quedans as were issued in the name of
the plaintiff were duly endorsed in blank by the plaintiff and by Otto Ranft; and fourth, that
the two remaining quedans which were duly endorsed in blank by him.
When these quedans were thus negotiated, Otto Ranft was indebted to the Hongkong &
Shanghai Banking Corporation in the sum of P622,753.22, which indebtedness was partly
covered by quedans. He was also being pressed to deposit additional payments as a further
security to the bank, and there is no doubt that the quedans here in question were received
by the bank to secure the payment of Ranft's preexisting debts; it is so stated in paragraph 3
of the stipulation of the facts agreed on by the parties and hereinbefore quoted.
It further appears that it has been the practice of the bank in its transactions with Ranft that
the value of the quedans has been entered in the current accounts between Ranft and the
bank, but there is no evidence to the effect that the bank was at any time bound to pay back
to Ranft the amount of any of the quedans, and there is nothing in the record to show that
the bank has promised to pay the values of the quedans neither to Ranft nor to the herein
plaintiff; on the contrary, as stated in the stipulation of facts, the "negotiable warehouse
receipts were pledged by Otto Ranft to the defendant Hongkong & Shanghai Banking
Corporation secure the payment of his preexisting debts to the latter", and taking into
consideration that the quedans were negotiable in form and duly endorsed in blank by the
plaintiff and by Otto Ranft, it follows that on the delivery of the qeudans to the bank they
were no longer the property of the indorser unless he liquidated his debt with the bank.
In his brief the plaintiff insists that the defendant, before the delivery of the quedans, should
have ascertained whether Ranft had any authority to negotiate the quedans.

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We are unable to find anything in the record which in any manner would have compelled the
bank to investigate the indorser. The bank had a perfect right to act as it did, and its action
is in accordance with sections 47, 38, and 40 of the Warehouse Receipts Act (Act No. 2137),
which read as follows:
SEC. 47. When negotiation not impaired by fraud, mistake, or duress. The validity
of the negotiation of a receipt is not impaired by the fact that such negotiation was a
breach of duty on the part of the person making the negotiation, or by the fact that
the owner of the receipt was induced by fraud, mistake, or duress to intrust the
possession or custody of the receipt was negotiated, or a person to whom the receipt
was subsequent negotiated, paid value therefor, without notice of the breach of duty,
or fraud, mistake, or duress.
SEC. 38. Negotiation of negotiable receipts by indorsement. A negotiable receipt
may be negotiated by the indorsement of the person to whose order the goods are,
by the terms of the receipt, deliverable. Such indorsement may be in blank, to bearer
or to a specified person. . . . Subsequent negotiation may be made in like manner.
SEC. 40. Who may negotiate a receipt. A negotiable receipt may be negotiated:
(a) By the owner thereof, or
(b) By any person to whom the possession or custody of the receipt has been
entrusted by the owner, if, by the terms of the receipt, the warehouseman
undertakes to deliver the goods to the order of the person to whom the possession or
custody of the receipt has been entrusted, or if at the time of such entrusting the
receipt is in such form that it may be negotiated by delivery.
The question as to the rights the defendant bank acquired over the aforesaid quedans after
indorsement and delivery to it by Ranft, we find in section 41 of the Warehouse Receipts Act
(Act No. 2137):
SEC. 41. Rights of person to whom a receipt has been negotiated. A person to
whom a negotiable receipt has been duly negotiated acquires thereby:
(a) Such title to the goods as the person negotiating the receipt to him had or had
ability to convey to a purchaser in good faith for value, and also such title to the
goods as the depositor of person to whose order the goods were to be delivered by
the terms of the receipt had or had ability to convey to a purchaser in good faith for
value, and. . . .
In the case of the Commercial National Bank of New Orleans vs. Canal-Louisiana Bank &
Trust Co. (239 U.S., 520), Chief Justice Hughes said in regard to negotiation of receipts:
It will be observed that "one who takes by trespass or a finder is not included within
the description of those who may negotiate." (Report of Commissioner on Uniform
States Laws, January 1, 1910, p. 204.) Aside from this, the intention is plain to
facilitate the use of warehouse receipts as documents of title. Under sec. 40, the
person who may negotiate the receipt is either the "owner thereof", or a "person to
whom the possession or custody of the receipt has been intrusted by the owner" if
the receipt is in the form described. The warehouse receipt represents the goods, but
the intrustion of the receipt, as stated, is more than the mere delivery of the goods; it
is a representation that the one to whom the possession of the receipt has been so
intrusted has the title to the goods. By sec. 47, the negotiation of the receipt to a
purchaser for value without notice is not impaired by the fact that it is a breach of
duty, or that the owner of the receipt was induced "by fraud, mistake, or duree" to
intrust the receipt to the person who negotiated it. And, under sec. 41, one to whom
the negotiable receipt has been duly negotiated acquires such title to the goods as
the person negotiating the receipt to him, or the depositor or person whose order the
goods were delivered by the terms of the receipt, either had or "had ability to convey
to a purchaser in good faith for value." The clear import of these provisions is that if
the owner of the goods permit another to have the possession or custody of
negotiable warehouse receipts running to the order of the latter, or to bearer, it is a

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representation of title upon which bona fide purchasers for value are entitled to rely,
despite breaches of trust or violations of agreement on the part of the apparent
owner.
In its second assignment of error, the defendant-appellant maintains that the plaintiffappellee is estopped to deny that the bank had a valid title to the quedans for the reason
that the plaintiff had voluntarily clothed Ranft with all the attributes of ownership and upon
which the defendant bank relied. In our opinion, the appellant's view is correct. In the
National Safe Deposit vs. Hibbs (229 U.S., 391), certain certificates of stock were pledged as
collateral by the defendant in error to the plaintiff bank, which certificates were converted
by one of the trusted employees of the bank to his own use and sold by him. The stock
certificates were unqualified endorsed in blank by the defendant when delivered to the
bank. The Supreme Court of the United States through Justice Day applied the familiar rule
of equitable estoppel that where one of two innocent persons must suffer a loss he who by
his conduct made the loss possible must bear it, using the following language:
We think this case correctly states the principle, and, applied to the case in hand, is
decisive of it. Here one of two innocent person must suffer and the question at last is,
Where shall the loss fall? It is undeniable that the broker obtained the stock
certificates, containing all the indicia of ownership and possible of ready transfer,
from one who had possession with the bank's consent, and who brought the
certificates to him, apparently clothed with the full ownership thereof by all the tests
usually applied by business men to gain knowledge upon the subject before making a
purchase of such property. On the other hand, the bank, for a legitimate purpose,
with confidence in one of its own employees, instrusted the certificates to him, with
every evidence of title and transferability upon them. The bank's trusted agent, in
gross breach of his duty, whether with technical criminality or not is unimportant,
took such certificates, thus authenticated with evidence of title, to one who, in the
ordinary course of business, sold them to parties who paid full value for them. In such
case we think the principles which underlie equitable estoppel place the loss upon
him whose misplaced confidence has made the wrong possible. . . .
We regret that the plaintiff in this case has suffered the loss of the quedans, but as far as we
can see, there is now no remedy available to the plaintiff. The bank is not responsible for the
loss; the negotiable quedans were duly negotiated to the bank and as far as the record
shows, there has been no fraud on the part of the defendant.
The appealed judgment is reversed and the appellant is absolved from the plaintiff's
complaint. Without costs. So ordered.
Johnson, Street, Malcolm, Villamor, Villa-Real and Imperial, JJ., concur.
Separate Opinions
ROMUALDEZ, J., dissenting:
With due respect for the majority opinion, I dissent and vote for the confirmation of the
appealed judgment.

Cases
G.R. No. L-2826
June 11, 1951
ALFREDO N. CRUZ, plaintiff-appellant,

vs.
JOSE M. VALERO and LUZON and LUZON SUGAR COMPANY, defendants-appellees.
Alfredo N. Cruz and Delgado, Dizon and Flores for appellant.
Ross, Selph, Carascosso and Janda for appellees.
PADILLA, J.:
This is an action to recover from the Luzon Sugar Company and Jose M. Valero, as its
President and General manager, 634.03 piculs of domestic centrifugal sugar and 1,341
gallons of molasses, 152.39 piculs of reserve centrifugal sugar and 297.37 piculs of
additional centrifugal sugar or their value, in default of delivery of such sugar and molasses,
at the rate of P91 per picul which was the market value at the time of the filing of the
complaint; to collect P140, the value of two tires and tubes of Ford truck taken by the Luzon
Sugar Company; and to secure a pronouncement that Jose M. Valero, in his capacity
aforesaid, had sold the 634,03 piculs of centrifugal sugar belonging to the plaintiff without
without the latters knowledge and consent and appropriated the proceeds thereof to his own
use and benefit and to the damage and prejudice of the plaintiff.
After the trial, the court dismissed the complaint, for the reason that the centrifugal sugar
deposited by the plaintiff in the warehouse of the Luzon Sugar Company within its compound
was lost due to a fortuitous event or force majeure, directed the plaintiff to pay the costs of
the suit, and dismissed the counterclaim of the defendants, because it was not shown that
the plaintiff acted with malice in bringing the suit. From this judgment the plaintiff appealed.
There is no dispute that the appellant was a sugar cane planter adhered to the Luzon Sugar
Company, a sugar central to located in the municipality of Calumet, province of Bulacan,
which extracted juice from sugar cane by crushing it and manufactured centrifugal sugar out
of the juice extracted from the sugar cane delivered to it by the planters (Exhibit F); that the
appellant had a share amounting to 1,544.38 piculs export centrifugal sugar, known as A
sugar, which was exchanged for an equal amount of domestic centrifugal sugar, known as B
sugar, deposited in the Luzon Sugar Company's .warehouse within its compound, with the
obligation on its part to deliver it to the appellant on demand; that in addition to such
amount of domestic centrifugal sugar, the appellant was entitled to 238.20 piculs of
domestic centrifugal sugar, as his share in the 1940-1941 crop, and to 5,594 gallons of
molasses; that on different dates and occasions, the appellant had withdrawn several piculs
of sugar, reducing it to 632.03, and several thousands of gallons, reducing the number of
gallons of molasses to 1,341; that the appellant was entitled to 152.39 piculs reserve
centrifugal sugar known as C sugar; that the appellant was also entitled to 297.37 piculs of
additional centrifugal sugar as his share in the 1939-1940 and 1940-1941 crops, all of which

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were stored in the warehouse and in the cylindrical tanks of the Luzon Sugar Company,
which the other appellee was the president and General Manager. Adding up the amounts of
Sugar stored by the appellant in the warehouse of the Luzon Sugar Company, to wit: 632.03
of domestic sugar, 152.39 of reserve sugar, and 297.37 of additional sugar, gives a total of
1,081.79 piculs of centrifugal sugar.
The appellant claims that on 26 and 27 December 1941, the Luzon Sugar Company did not
have in its warehouse in the Calumpit the amount of centrifugal sugar he had stored in its
warehouse for safekeeping and the number of gallons of molasses he had left in its
possession contained in cylindrical tanks, because the appellee Jose M. Valero had disposed
of the same without the knowledge and consent of appellant and that on December 28,
when the appellant wanted to withdraw his sugar from the warehouse of the Luzon Sugar
Company, the amount of sugar stored in the warehouse was not manufactured by the Luzon
Sugar Company but by Pampanga Sugar Development Company. On the other hand, the
appellee contend that before 28 December 1941, the Luzon Sugar Company had in its
warehouse sufficient amount of centrifugal sugar manufactured by it and was in a position to
deliver sugar to planters who wished to withdraw and take delivery thereof, but that on the
last mentioned date, the central was bombed by Japanese airplanes the warehouse
damaged by shrapnel and some piculs of centrifugal sugar were looted, some taken by the
Imperial Japanese Army after the occupation of the town of Calumpit by the said Army on
January 1942, and the remaining brought by the Japanese Army to Northern Luzon; that for
that reason it rendered impossible the delivery of the centrifugal sugar and molasses
belonging to the appellant; and that the Ford truck tires and tubes, the value of which is
sought to be collected, were taken by the management of the sugar central under the
Japanese Military Administration.
The appellant relies on the testimony of Amado de Guzman, an accountant of the Luzon
Sugar Company, who said that the amount of domestic centrifugal sugar deposited by the
appellant with the Luzon Sugar Company was disposed of by the latter without the consent
of the former (pp. 26, 27, 34 t.s.n. Peralta), to be replaced by or with centrifugal sugar ,
known as C sugar, was sent to the subsidiary warehouse of the central located at the Insular
Refining Company in Mandaluyong(pp. 46, 47, 69, t.s.n. Peralta); and on that of Petra
Cristobal who said that she wanted to buy twenty sacks of sugar from the appellant, but that
when she together with the wife of the appellant and one from Malolos, accompanied by
Ciriaco B. Serrano, the chemist of the Luzon Sugar Company, went to the warehouse of the
Luzon Sugar Company on Monday before Christmas of 1941, she found that the sacks were
wet and were not Luzon Sugar Company but Pasudeco sugar; that for that reason she
desisted from buying (pp. 74 76, 80, t.s.n. Peralta); and that she figured out there were
100 or less than 100 of sugar on that Monday she went to the warehouse (pp. 76, 79, t.s.n.
Peralta).
The appellant testified that after learning that there was no Luzon Sugar Company but
Pasudeco sugar in the Calumpit warehouse, he wrote on 26 December 1941 a latter to
appellee Jose M. Valero, copy of which is Exhibit P, expressing his desire to withdraw all his
sugar; and that the following day after receipt on 27 December of the answer (Exhibit G), he
together with Jose B. Timbol went to the warehouse and "found out that there were no more
Luzon sugar in the bodega, but only small pile of Pasudeco sugar." )pp. 129, 145, t.s.n.
Peralta).
The appellant relies also on Exhibit G, which is a letter signed by Jose B. Timbol, a
bookkeeper of the Luzon Sugar Company pp. 91, t.s.n. Peralta), but the sheet of paper on
which the letter had been written was cut, the upper part thereof is missing and the
remaining part of the sheet is less than one half of an 8" X 10 1/2" size paper sheet and less
than one third of an 8" X 13" sized paper sheet. The appellant attempted to supply the
contents of the missing part of the letter by introducing a purported copy thereof marked
Exhibit G 1. In the supplied contents of the missing part of the letter, it is made to appear
that on 27 December 1941, the Luzon Sugar Company had 56.55 sacks or piculs of sugar in

Cases
its warehouse in Calumpit and 1,097.50 in its subsidiary in Mandaluyong, meaning the
Insular Refining Company.
If the contents of the missing part of the letter marked Exhibit G are as they appear in
Exhibit G-1, then on 27 December 1941, the Luzon Sugar Company did not have appellant
had deposited with it. The inference maybe drawn from such supplied contents of missing
part of the letter marked Exhibit G that there was stored and kept in the subsidiary
warehouse in Mandaluyong, referring to the Insular Refining Company, an amount more than
sufficient to cover the amount of sugar belonging to the appellant deposited by him with the
Luzon Sugar Company in Calumpit. And if that were the case, then the Luzon Sugar
Company could not make delivery in Calumpit of the appellants sugar upon his demand and
would be answerable or liable to the appellant for his sugar or would have to pay its market
price at the time of the demand for its delivery.
On their part, the appellees presented Ciriaco B. Serrano, the chemist of the Luzon Sugar
Company, the only one entrusted with the safekeeping of the keys to the warehouse (pp. 46, t.s.n. Sanchez )where the sugar of the central and of the planters was kept, who
testified that Petra Cristobal did not go to the warehouse of the central on Monday before
Christmas of 1941 )pp. 16, 26, t.s.n. Sanchez); that on 28 December 1941, the Luzon
Sugar Company compound did not go to the warehouse in Calumpit (pp. 655-7 11, 17, 27,
t.s.n. Sanchez; (Monico Arceo, the mechanical engineer of the Luzon Sugar Company,
corroborates him on the bombing of the compound and on the fact that the appellant did not
go to the warehouse on 28 December 1941 [p. 84, t.s.n. Sanchez; that on the date there
were 1,200 piculs of domestic sugar belonging to the planters in the warehouse in Calumpit
( p. 8, t.s.n. Sanchez); and 11,000 gallons of molasses deposited or kept in two cylindrical
tanks near the warehouse, the big tanks having been hit by a bomb (pp. 9, 10, t.s.n.
Sanchez); that the compound of the Luzon Sugar Company was abandoned by its officers
and employees and occupied by the Japanese from 1 January to 20 February 1942 (pp. 7, 17,
t.s.n. Sanchez); that on the last mentioned date, when he (Ciriaco B. Serrano) returned to
the compound of the Luzon Sugar Company in Calumpit, he found that the sugar deposited
there had almost completely disappeared (pp. 10, 36, 66, 76 t.s.n. Sanchez), and only
5,000 gallons of molasses were left (p.10, t.s.n. -Sanchez); and that after the Japanese
soldiers had left Calumpit, the compound and offices of the of the Luzon Sugar Company in
said place were immediately occupied by the Japanese Military Administration, which
through its representative Captain Nunaka, had absolute control of said compound and
offices (pp. 18, 32, -37, t.s.n. Sanchez). The part of Ciriaco B. Serrano's testimony as to
the amount of sugar stored in the warehouse of the Luzon Sugar Company on 28 December
1941 (p. 8, t.s.n. Sanchez) is corroborated by Nicolas S. Cruz who together with the
appellant went to the warehouse on 27 December 1941, and saw 1,000 sacks or piculs of
sugar, more or less )pp. 47, 48, 57, 58, t.s.n. Sanchez; by Fausto Carlos, incumbent
municipal mayor of the town of Calumpit, went together with an American Army captain to
see the extent of the damage caused to the compound by the bombing and there saw a
large amount of sugar (pp. 62, 63, 65, 66, 77, 78, t.s.n.-Sanchez); and by Jose Lopez, who
went to the warehouse on 29 December 1941 to withdraw 25 sacks or piculs of sugar and
there saw 1,000 piculs of sugar, more or less (pp. 103.104, 118, 119, t.s.n. Sanchez.).
The testimony of Petra Cristobal cannot be relied upon, because Ciriaco B. Serrano, the only
person or employee of the Luzon Sugar Company who kept the keys to the warehouse and
who, according to Petra, accompanied her to the warehouse (p. 80, t.s.n. Peralta),
testified that Petra did not go to the warehouse on Monday immediately preceding the
Christmas of 1941 (pp. 16, 26, t.s.n. Sanchez). Assuming that what she testified was true
and that the Pasudeco sack was of the same weight as that of the Luzon Sugar Company
although the latter's sack might have looked larger (p. 77, t.s.n. Peralta), the reason why
she did not get the sugar was flimsy. If she needed it, a small difference in the size of the
sack was of little importance. Asked how many sacks she saw in the warehouse, she said
that she did not count them (pp. 76, 79, t.s.n. Peralta). On cross-examination, however,
she said that it was 100 piculs, more or less. She further said that previous to (p.79, t.s.n.

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Peralta), but in the same breath she said that it was only that Monday before Christmas of
1941 that she went to the warehouse of the Luzon Sugar Company (p. 81, t.s.n. Peralta).
The supplied contents of the missing part of the letter marked Exhibit G, appearing on
Exhibit G 1 , which state that before noon of 27 December 1941, appellee Jose M. Valero
came to Calumpit, to whom Jose B. Timbol showed or gave the appellant's letter dated 26
December (Exhibit P), and that there only 56.55 piculs of sugar in the site, meaning in the
warehouse at Calumpit, cannot also be relied upon to prove the amount of sugar that was in
the warehouse of the Luzon Sugar Company in Calumpit on 27 December 1941 because Jose
M. Valero testified that the last time he went to Calumpit was on December 1941 and in the
afternoon of that day he together with his family left Manila to seek refuge in Antipolo (p. 24,
t.s.n., Rebuttal Sanchez). According to Petra Cristobal, a witness for the appellant, when
she went to the warehouse in Calumpit on Monday before Christmas of 1941, she saw 100
sacks or piculs of sugar, or more or less. This testimony contradicts the supplied contents of
the missing part of the letter Exhibit G, appearing on Exhibit G 1, which state that there
were only 56.55 sacks or piculs of sugar in the warehouse of Luzon Sugar Company in
Calumpit, there being no showing that during the short interval there had been withdrawal
of sugar from the warehouse. The appellant's explanation how the letter Exhibit G was cut
and the upper part of the sheet destroyed or lost can hardly be believed, because so
important a document as Exhibit G could not have left or placed so carelessly by him on his
stable that it was used to wrap up coins (pp. 131-133, t.s.n. Peralta).
The preponderance of evidence is to the effect that there was enough sugar to cover and
deliver 1,081.79 piculs of domestic, reserve and additional sugar belonging to the appellant
who, according to the milling contract, was in duty bound to take delivery thereof at the
warehouse. And it having been established that the Luzon Sugar Company compound was
bombed on 28 December 1941 and the Japanese Army occupied it from 1 January to 20
February 1942; that some taken by the Imperial Japanese Army and the remaining brought
to Northern Luzon by said Army; and that the two tires and tubes, the price or value of which
is sought to be collected, had been taken by Captain Nunaka of the Imperial Japanese Army,
as testified to by appellant of holding that the appellees are responsible for said sugar,
molasses, tires, and tubes because the loss was due to the war or to a fortuitous event.
The judgment appealed from is affirmed, without costs.
Paras, C.J., Feria, Pablo, Bengzon, Montemayor, Reyes and Jugo, JJ., concur.

Cases
G.R. No. 157309
March 28, 2008
MARLOU L. VELASQUEZ, Petitioner,

vs.
SOLIDBANK CORPORATION, Respondent.
DECISION
REYES, R.T., J.:
PARTIES may not impugn the effectivity of a contract, after much benefit has been gained to
the prejudice of another. They are bound by the obligations they expressly set out to do.
Before Us is a petition for review on certiorari of the Decision 1 of the Court of Appeals (CA)
which affirmed with modification that of the Regional Trial Court (RTC) in Cebu City, 2 holding
petitioner Marlou Velasquez liable under his letter of undertaking to respondent Solidbank
Corporation.
The Facts
Petitioner is engaged in the export business operating under the name Wilderness Trading.
Respondent is a domestic banking corporation organized under Philippine laws.
The case arose out of a business transaction for the sale of dried sea cucumber for export to
South Korea between Wilderness Trading, as seller, and Goldwell Trading of Pusan, South
Korea, as buyer. To facilitate payment of the products, Goldwell Trading opened a letter of
credit in favor of Wilderness Trading in the amount of US$87,500.00 3 with the Bank of Seoul,
Pusan, Korea.
On November 12, 1992, petitioner applied for credit accommodation with respondent bank
for pre-shipment financing. The credit accommodation was granted. Petitioner was
successful in his first two export transactions both drawn on the letter of credit. The third
export shipment, however, yielded a different result.
On February 22, 1993, petitioner submitted to respondent the necessary documents for his
third shipment. Wanting to be paid the value of the shipment in advance, petitioner
negotiated for a documentary sight draft to be drawn on the letter of credit, chargeable to
the account of Bank of Seoul. The sight draft represented the value of the shipment in the
amount of US$59,640.00.4
As a condition for the issuance of the sight draft, petitioner executed a letter of undertaking
in favor of respondent. Under the terms of the letter of undertaking, petitioner promised that
the draft will be accepted and paid by Bank of Seoul according to its tenor. Petitioner also
held himself liable if the sight draft was not accepted. The letter of undertaking provided:
SOLIDBANK CORPORATION Feb. 22, 1993
32 Borromeo Street
Cebu City
Gentlemen: Re: PURCHASE OF ONE DOC. SIGHT DRAFT DRAWN UNDER
LC#M2073210NS00040 FOR US$59,640.00 UNDER OUR CEBP93/102.
In consideration of your negotiating the above described draft(s), we hereby warrant that
the above referred to draft(s) and accompanying documents are genuine and accurately
represent the facts stated therein and that the draft(s) will be accepted and paid in
accordance with its/their tenor. We further undertake and agree, jointly and severally, to
hold you free and harmless from and to defend all actions, claims and demands whatsoever,
and to pay on demand all damages, actual or compensatory, including attorneys fees, in

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case of suit, at least equal to __% of the amount due, which you may suffer arising by reason
of or on account of your negotiating the above draft(s) because of the following
discrepancies or reasons or any other discrepancy or reason whatever:
1) B/L MARKED "SAID TO CONTAIN" & "SHIPPERS LOAD, STOWAGE & COUNT."
2) LATE SHIPMENT.
3) QUANTITY SHIPPED @ US$14.00 OVERDRAWN BY 0.06 TON.
4) NO INSPECTION CERTIFICATE PRESENTED.
We hereby undertake to pay on demand the full amount of the draft(s) or any unpaid
balance of the draft(s), with interest at the prevailing rate of today from the date of
negotiation, plus all charges and expenses whatsoever incurred in connection therewith. You
shall neither be obligated to contest or dispute any refusal to accept or to pay the whole or
any part of the above draft(s) nor to proceed in anyway against the drawee thereof, the
issuing bank, or against any indorser thereof before making a demand on us for the
payment of the whole or any unpaid balance of the draft(s). 5 (Emphasis added)
By virtue of the letter of undertaking, respondent advanced the value of the shipment which,
at the current rate of exchange at that time was P1,495,115.16, less bank charges, to
petitioner. Respondent then sent all the documents pertinent to the export transaction to the
Bank of Seoul.
Respondent failed to collect on the sight draft as it was dishonored by non-acceptance by
the Bank of Seoul. The reasons given for the dishonor were late shipment, forged inspection
certificate, and absence of countersignature of the negotiating bank on the inspection
certificate.6 Goldwell Trading likewise issued a stop payment order on the sight draft because
most of the bags of dried sea cucumber exported by petitioner contained soil.
Due to the dishonor of the sight draft and the stop payment order, respondent demanded
restitution of the sum advanced.7 Petitioner failed to heed the demand.
On June 3, 1993, respondent filed a complaint for recovery of sum of money 8 with the RTC in
Cebu City. In his answer, petitioner alleged that his liability under the sight draft was
extinguished when respondent failed to protest its non-acceptance, as required under the
Negotiable Instruments Law (NIL). He also alleged that the letter of undertaking is not
binding because it is a superfluous document, and that he did not violate any of the
provisions of the letter of credit.9
RTC and CA Dispositions
On September 25, 1996, the RTC rendered judgment10 in favor of respondent with the
following fallo:
IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering the defendant:
(1) to pay the plaintiff the principal sum of P1,495, 115.16 plus interest at 20% per
annum counted from February 22, 1993 up to the time the entire amount shall have
been fully paid;
(2) to pay attorneys fees equivalent to 10% of the total amount due the plaintiff; and
(3) to pay the costs.
SO ORDERED.11
The RTC ratiocinated:

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This court is not convinced with the defendants argument that because of plaintiffs failure
to protest the dishonor of the sight draft, his liability is extinguished because his liability
remains under the letter of undertaking which he signed and without which plaintiff would
not have advanced or credited to him the amount.
Section 152 of the Negotiable Instruments Law under which defendant claims
extinguishment of his liability to plaintiff is not a bar to the filing of other appropriate
remedies which the aggrieved party may pursue to vindicate his rights and in this instant
case, plaintiff wants his right vindicated by virtue of the letter of undertaking which
defendant signed. By the letter of undertaking, defendant bound himself to pay on demand
all damages including attorneys fees which plaintiff may suffer arising by reason of or on
account of negotiating the above draft because of the following discrepancies or any other
discrepancy or reasons whatsoever and further to pay on demand full amount of any unpaid
balance with interest at the prevailing rate. He should be bound to the fulfillment of what he
expressly obligated himself to do and perform in the letter of undertaking without which,
plaintiff would not have advance (sic) and credited to him the amount in the draft. He should
not enrich himself at the expense of plaintiff.12 (Emphasis added)
Disagreeing, petitioner elevated the matter to the CA.
On June 27, 2002, the CA affirmed with modification the RTC decision, disposing as follows:
WHEREFORE, premises considered, the assailed Decision is hereby AFFIRMED with
MODIFICATION. Defendant-appellant Marlou L. Velasquez is hereby ordered to pay plaintiffappellee Solidbank Corporation, the following: (1) the principal amount of One Million Four
Hundred Ninety-Five Thousand One Hundred Fifteen and Sixteen Centavos (P1,495,115.16)
plus interest at twelve percent (12%) per annum from February 22, 1993 until fully paid, (2)
attorneys fees equivalent to five percent (5%) of the total amount due, and (3) costs of the
suit.
SO ORDERED.13
In ruling against petitioner, the CA opined:
The fact that said draft was dishonored and not paid by the Bank of Seoul-Korea, (sic) it is
incumbent upon defendant-appellant Velasquez to comply with his obligation under the
Letter of Undertaking. He cannot be allowed to impugn the contract of undertaking he
entered into by saying that it was a superfluous document, and therefore, not binding on
him. The contract of undertaking is the law between them, and must be enforced
accordingly. This is in accord with Article 1159 of the New Civil Code, which provides that
"obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith." And parties to a contract are bound to the fulfillment
of what has expressly been stipulated therein, regardless of the fact that it turn (sic) out to
be financially disadvantageous.14
xxxx
The fact that Defendant-appellant benefited from the advance payment made by Plaintiff
appellee, (sic) it is incumbent upon him to return what he received because the purpose of
the advance payment was not attained and/or realized, as the sight draft was not paid
accordingly, otherwise, it will result to unjust enrichment on the part of Defendant-appellant
at the expense of Plaintiff-appellee, in violation of Articles 19 and 22 of the New Civil Code.
The doctrine of unjust enrichment and restitution simply means that "the exercise of a right
ends when the right disappears, and it disappears when it is abused, especially to the
prejudice of others."15 (Emphasis added)
Petitioner moved for reconsideration16 but his motion was denied.17 Hence, the present
recourse.
Issues
Petitioner raises twin issues for Our consideration, to wit:

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THE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE, NOT HERETOFORE
DETERMINED BY THIS HONORABLE COURT, OR HAS DECIDED IT IN A WAY PROBABLY NOT IN
ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THIS HONORABLE COURT, IN
THAT:
I.
THE COURT OF APPEALS RULED THAT PETITIONER IS LIABLE ON THE ACCESSORY
CONTRACT, THE LETTER OF UNDERTAKING, DESPITE THE FACT THAT PETITIONER WAS
ALREADY RELEASED FROM LIABILITY UNDER THE SIGHT DRAFT, THE PRINCIPAL
CONTRACT, UNDER THE PROVISIONS OF THE NEGOTIABLE INSTRUMENTS LAW AND
THE CIVIL CODE.
II.
THE COURT OF APPEALS HELD PETITIONER LIABLE UNDER THE ACCESSORY
CONTRACT, THE LETTER OF UNDERTAKING, DESPITE THE FACT THAT THERE WAS NO
PROOF WHATSOEVER THAT PETITIONER VIOLATED EITHER THE PRINCIPAL CONTRACT,
THE SIGHT DRAFT, OR EVEN THE LETTER OF UNDERTAKING.18 (Underscoring supplied)
The main issue is whether or not petitioner should be held liable to respondent under the
sight draft or the letter of undertaking. There is no dispute that petitioner duly signed and
executed these documents. It is likewise admitted that the sight draft was dishonored by
non acceptance by the Bank of Seoul.
Our Ruling
The petition is without merit.
Petitioner is not liable under the sight draft but he is liable under his letter of undertaking;
liability under the letter of undertaking was not extinguished by non-protest of the dishonor
of the sight draft.
Petitioner argues that he cannot be held liable under either the sight draft or the letter of
undertaking. He claims that the failure of respondent to protest the dishonor of the sight
draft under Section 152 of the NIL discharged him from liability under the negotiable
instrument. It is also contended that his liability under the letter of undertaking is that of a
mere guarantor; that the letter of undertaking is only an accessory contract to the sight
draft. Since he was discharged from liability under the sight draft, he cannot be held liable
under the letter of undertaking.
For its part, respondent counters that petitioners liability springs from the letter of
undertaking, independently of the sight draft. It would not have advanced the amount
without the letter of undertaking. According to respondent, the letter of undertaking is an
independent agreement and not merely an accessory contract. To permit petitioner to
escape liability under the letter of undertaking would result in unjust enrichment.1avvphi1
Petitioners liability under the letter of undertaking is independent from his liability under the
sight draft. He may be held liable under either the sight draft or the letter of undertaking or
both.
Admittedly, petitioner was discharged from liability under the sight draft when respondent
failed to protest it for non-acceptance by the Bank of Seoul. A sight draft made payable
outside the Philippines is a foreign bill of exchange.19 When a foreign bill is dishonored by
non-acceptance or non-payment, protest is necessary to hold the drawer and indorsers
liable. Verily, respondents failure to protest the non-acceptance of the sight draft resulted in
the discharge of petitioner from liability under the instrument.
Section 152 of the NIL is explicit:
Section 152. In what cases protest necessary. Where a foreign bill appearing on its face to
be such is dishonored by non-acceptance, it must be duly protested for non-acceptance, and

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where such a bill which has not been previously dishonored by non-acceptance, is
dishonored by non-payment, it must be duly protested for non-payment. If it is not so
protested, the drawer and indorsers are discharged. Where a bill does not appear on its face
to be a foreign bill, protest thereof in case of dishonor is unnecessary. (Emphasis added)
Petitioner, however, can still be made liable under the letter of undertaking. It bears
stressing that it is a separate contract from the sight draft. The liability of petitioner under
the letter of undertaking is direct and primary. It is independent from his liability under the
sight draft. Liability subsists on it even if the sight draft was dishonored for non-acceptance
or non-payment.
Respondent agreed to purchase the draft and credit petitioner its value upon the
undertaking that he will reimburse the amount in case the sight draft is dishonored. The
bank would certainly not have agreed to grant petitioner an advance export payment were it
not for the letter of undertaking. The consideration for the letter of undertaking was
petitioners promise to pay respondent the value of the sight draft if it was dishonored for
any reason by the Bank of Seoul.
We cannot accept petitioners thesis that he is only a mere guarantor under the letter of
credit.1avvphi1 Petitioner cannot be both the primary debtor and the guarantor of his own
debt. This is inconsistent with the very purpose of a guarantee which is for the creditor to
proceed against a third person if the debtor defaults in his obligation. Certainly, to accept
such an argument would make a mockery of commercial transactions.
Petitioner bound himself liable to respondent under the letter of undertaking if the sight
draft is not accepted. He also warranted that the sight draft is genuine; will be paid by the
issuing bank in accordance with its tenor; and that he will be held liable for the full amount
of the draft upon demand, without necessity of proceeding against the drawee bank. 20
Petitioner breached his undertaking when the Bank of Seoul dishonored the sight draft and
Goldwell Trading ordered a stop payment order on it for discrepancies in the export
documents.
Petitioner is liable without need for respondent to establish collateral facts such as violations
of the letter of credit.
It is also argued that petitioner cannot be held liable under the letter of undertaking because
respondent failed to prove that he violated any of the provisions in the letter of credit or that
sixty (60) of the seventy-one (71) bags shipped to Goldwell Trading contained soil instead of
dried sea cucumber.
We cannot agree. Respondent need not prove that petitioner violated the provisions of the
letter of credit in order to be held liable under the letter of undertaking. Parties are bound to
fulfill what has been expressly stipulated in the contract.21 Petitioners liability under the
letter of undertaking is clear. He is liable to respondent if the sight draft is not accepted by
the Bank of Seoul. Mere non-acceptance of the sight draft is sufficient for liability to attach.
Here, the sight draft was dishonored for non-acceptance. The non-acceptance of the sight
draft triggered petitioners liability under the letter of undertaking.
Records also show that the Bank of Seoul found discrepancies in the documents submitted
by petitioner. Goldwell Trading issued a stop payment order because the products shipped
were defective. It found that most of the bags shipped contained soil instead of dried sea
cucumber. If petitioner disputes the finding of Goldwell Trading, he can file a case against
said company but he cannot dispute his liability under either the sight draft or the letter of
undertaking.
As We see it, this is a straightforward case of collection of sum of money on the basis of a
letter of undertaking. Respondent advanced the export payment to petitioner on the
understanding that the draft will be honored and paid. The draft was dishonored. Justice and
equity dictate that petitioner be held liable to respondent bank.
WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Appeals
dated June 27, 2002 is hereby AFFIRMED.

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SO ORDERED.
RUBEN T. REYES
Associate Justice
WE CONCUR:
MA. ALICIA AUSTRIA-MARTINEZ*
Associate Justice
Acting Chairperson
DANTE O. TINGA**
Associate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
ANTONIO EDUARDO B. NACHURA

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
Acting Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Acting Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
G.R. No. 117660. December 18, 2000]

AGRO CONGLOMERATES, INC. and MARIO SORIANO, petitioners, vs. THE HON.
COURT OF APPEALS and REGENT SAVINGS and LOAN BANK, INC., respondents.
DECISION
QUISUMBING, J.:
This is a petition for review challenging the decision dated October 17, 1994 of the Court of
Appeals in CA-G.R. No. 32933, which affirmed in toto the judgment of the Manila Regional
Trial Court, Branch 27, in consolidated Cases Nos. 86-37374, 86-37388, 86-37543.
This petition springs from three complaints for sums of money filed by respondent bank
against herein petitioners. In the decision of the Court of Appeals, petitioners were ordered
to pay respondent bank, as follows:
Wherefore, judgment is hereby rendered in favor of plaintiff and against defendants, as
follows:

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1) In Civil Case No. 86-37374, defendants [petitioners, herein] are ordered jointly and
severally, to pay to plaintiff the amount of P78,212.29, together with interest and service
charge thereon, at the rates of 14% and 3% per annum, respectively, computed from
November 10, 1982, until fully paid, plus stipulated penalty on unpaid principal at the rate of
6% per annum, computed from November 10, 1982, plus 15% as liquidated damage plus
10% of the total amount due, as attorneys fees, plus costs;
2) In Civil Case No. 86-37388, defendant is ordered to pay plaintiff the amount of
P632,911.39, together with interest and service charge thereon at the rate of 14% and 3%
per annum, respectively, computed from January 15, 1983, until fully paid, plus stipulated
penalty on unpaid principal at the rate of 6% per annum, computed from January 15, 1983,
plus liquidated damages equivalent to 15% of the total amount due, plus attorneys fees
equivalent to 10% of the total amount due, plus costs; and
3) In Civil Case No. 86-37543, defendant is ordered to pay plaintiff, on the first cause of
action, the amount of P510,000.00, together with interest and service charge thereon, at the
rates of 14% and 2% per annum, respectively, computed from March 13, 1983, until fully
paid, plus a penalty of 6% per annum, based on the outstanding principal of the loan,
computed from March 13, 1983, until fully paid; and on the second cause of action, the
amount of P494,936.71, together with interest and service charge thereon at the rates of
14% and 2%, per annum, respectively, computed from March 30, 1983, until fully paid, plus
a penalty charge of 6% per annum, based on the unpaid principal, computed from March 30,
1983, until fully paid, plus (on both causes of action) an amount equal to 15% of the total
amounts due, as liquidated damages, plus attorneys fees equal to 10% of the total amounts
due, plus costs.
Based on the records, the following are the factual antecedents.
On July 17, 1982, petitioner Agro Conglomerates, Inc. as vendor, sold two parcels of land to
Wonderland Food Industries, Inc. In their Memorandum of Agreement, the parties
covenanted that the purchase price of Five Million (P5,000,000.00) Pesos would be settled by
the vendee, under the following terms and conditions: (1) One Million (P1,000,000.00) Pesos
shall be paid in cash upon the signing of the agreement; (2) Two Million (P2,000,000.00)
Pesos worth of common shares of stock of the Wonderland Food Industries, Inc.; and (3) The
balance of P2,000,000.00 shall be paid in four equal installments, the first installment falling
due, 180 days after the signing of the agreement and every six months thereafter, with an
interest rate of 18% per annum, to be advanced by the vendee upon the signing of the
agreement.
On July 19, 1982, the vendor, the vendee, and the respondent bank Regent Savings & Loan
Bank (formerly Summa Savings & Loan Association), executed an Addendum o the previous
Memorandum of Agreement. The new arrangement pertained to the revision of settlement
of the initial payments of P1,000,000.00 and prepaid interest of P360,000.00 (18% of
P2,000,000.00) as follows:
Whereas, the parties have agreed to qualify the stipulated terms for the payment of the said
ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS.
WHEREFORE, in consideration of the mutual covenant and agreement of the parties, they do
further covenant and agree as follows:
1. That the VENDEE instead of paying the amount of ONE MILLION THREE HUNDRED SIXTY
THOUSAND (P1,360,000.00) PESOS in cash, hereby authorizes the VENDOR to obtain a loan
from Summa Savings and Loan Association with office address at Valenzuela, Metro Manila,
being represented herein by its President, Mr. Jaime Cario and referred to hereafter as
Financier; in the amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND
(P1,360,000.00)PESOS, plus interest thereon at such rate as the VENDEE and the Financier
may agree, which amount shall cover the ONE MILLION (P1,000,000.00) PESOS cash which
was agreed to be paid upon signing of the Memorandum of Agreement, plus 18% interest on
the balance of two million pesos stipulated upon in Item No. 1(c) of the said agreement;
provided however, that said loan shall be made for and in the name of the VENDOR.

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2. The VENDEE also agrees that the full amount of ONE MILLION THREE HUNDRED SIXTY
THOUSAND (P1,360,000.00) PESOS be paid directly to the VENDOR; however, the VENDEE
hereby undertakes to pay the full amount of the said loan to the Financier on such terms and
conditions agreed upon by the Financier and the VENDOR, it being understood that while the
loan will be secured from and in the name of the VENDOR, the VENDEE will be the one liable
to pay the entire proceeds thereof including interest and other charges.
This addendum was not notarized.
Consequently, petitioner Mario Soriano signed as maker several promissory notes, payable
to the respondent bank. Thereafter, the bank released the proceeds of the loan to
petitioners. However, petitioners failed to meet their obligations as they fell due. During that
time, the bank was experiencing financial turmoil and was under the supervision of the
Central Bank. Central Bank examiner and liquidator Cordula de Jesus, endorsed the subject
promissory notes to the banks counsel for collection. The bank gave petitioners opportunity
to settle their account by extending payment due dates. Mario Soriano manifested his
intention to re-structure the loan, yet did not show up nor submit his formal written request.
Respondent bank filed three separate complaints before the Regional Trial Court of Manila
for Collection of Sums of money. The corresponding case histories are illustrated in the table
below:
Date of Loan
Amount
Payment Due Date
Payment Extension Dates
Civil Case 86-37374

August 12, 1982
P 78,212.29
Civil Case 86-37388

July 19, 1982
P 632,911.39 Jan. 15, 1983
May 16, 1983

Aug. 14, 1983
Civil Case 86-37543

September 14, 1982
P 510,000.00 March 13, 1983
June 11, 1983

Sept. 9, 1983
October 1, 1982
P 494,936.71 March 30, 1983
Nov. 10, 1982
Feb. 8, 1983
May 9, 1983
Aug. 7, 1983
June 28, 1983

Sept. 26, 1983
In their answer, petitioners interposed the defense of novation and insisted there was a valid
substitution of debtor. They alleged that the addendum specifically states that although the
promissory notes were in their names, Wonderland shall be responsible for the payment
thereof.
The trial court held that petitioners are liable, to wit:
The evidences, however, disclose that Wonderland did not comply with its obligation under
said Addendum (Exh. S) as the agreement to turn over the farmland to it, did not materialize
(57 tsn, May 29, 1990), and there was, actually no sale of the land (58 tsn, ibid). Hence,
Wonderland is not answerable. And since the loans obtained under the four promissory notes
(Exhs. A, C, G, and E) have not been paid, despite opportunities given by plaintiff to
defendants to make payments, it stands to reason that defendants are liable to pay their
obligations thereunder to plaintiff. In fact, defendants failed to file a third-party complaint
against Wonderland, which shows the weakness of its stand that Wonderland is answerable
to make said payments.
Petitioners appealed to the Court of Appeals. The trial courts decision was affirmed by the
appellate court.
Hence, this recourse, wherein petitioners raise the sole issue of:

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WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ADDENDUM, SIGNED
BY THE PETITIONERS, RESPONDENT BANK AND WONDERLAND INC., CONSTITUTES A
NOVATION OF THE CONTRACT BY SUBSTITUTION OF DEBTOR, WHICH EXEMPTS THE
PETITIONERS FROM ANY LIABILITY OVER THE PROMISSORY NOTES.
Revealed by the facts on record, the conflict among the parties started from a contract of
sale of a farmland between petitioners and Wonderland Food Industries, Inc. As found by the
trial court, no such sale materialized.
A contract of sale is a reciprocal transaction. The obligation or promise of each party is the
cause or consideration for the obligation or promise by the other. The vendee is obliged to
pay the price, while the vendor must deliver actual possession of the land. In the instant
case the original plan was that the initial payments would be paid in cash. Subsequently, the
parties (with the participation of respondent bank) executed an addendum providing
instead, that the petitioners would secure a loan in the name of Agro Conglomerates Inc. for
the total amount of the initial payments, while the settlement of said loan would be assumed
by Wonderland. Thereafter, petitioner Soriano signed several promissory notes and received
the proceeds in behalf of petitioner-company.
By this time, we note a subsidiary contract of suretyship had taken effect since petitioners
signed the promissory notes as maker and accommodation party for the benefit of
Wonderland. Petitioners became liable as accommodation party. An accommodation party is
a person who has signed the instrument as maker, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person and is liable
on the instrument to a holder for value, notwithstanding such holder at the time of taking
the instrument knew (the signatory) to be an accommodation party. He has the right, after
paying the holder, to obtain reimbursement from the party accommodated, since the
relation between them has in effect become one of principal and surety, the accommodation
party being the surety. Suretyship is defined as the relation which exists where one person
has undertaken an obligation and another person is also under the obligation or other duty
to the obligee, who is entitled to but one performance, and as between the two who are
bound, one rather than the other should perform. The suretys liability to the creditor or
promisee of the principal is said to be direct, primary and absolute; in other words, he is
directly and equally bound with the principal. And the creditor may proceed against any one
of the solidary debtors.
We do not give credence to petitioners assertion that, as provided by the addendum, their
obligation to pay the promissory notes was novated by substitution of a new debtor,
Wonderland. Contrary to petitioners contention, the attendant facts herein do not make a
case of novation.
Novation is the extinguishment of an obligation by the substitution or change of the
obligation by a subsequent one which extinguishes or modifies the first, either by changing
the object or principal conditions, or by substituting another in place of the debtor, or by
subrogating a third person in the rights of the creditor. In order that a novation can take
place, the concurrence of the following requisites are indispensable:
1) There must be a previous valid obligation;
2) There must be an agreement of the parties concerned to a new contract;
3) There must be the extinguishment of the old contract; and
4) There must be the validity of the new contract.
In the instant case, the first requisite for a valid novation is lacking. There was no novation
by substitution of debtor because there was no prior obligation which was substituted by a
new contract. It will be noted that the promissory notes, which bound the petitioners to pay,
were executed after the addendum. The addendum modified the contract of sale, not the
stipulations in the promissory notes which pertain to the surety contract. At this instance,
Wonderland apparently assured the payment of future debts to be incurred by the
petitioners. Consequently, only a contract of surety arose. It was wrong for petitioners to

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presume a novation had taken place. The well-settled rule is that novation is never
presumed, it must be clearly and unequivocally shown.
As it turned out, the contract of surety between Wonderland and the petitioners was
extinguished by the rescission of the contract of sale of the farmland. With the rescission,
there was confusion or merger in the persons of the principal obligor and the surety, namely
the petitioners herein. The addendum which was dependent thereon likewise lost its efficacy.
It is true that the basic and fundamental rule in the interpretation of contract is that, if the
terms thereof are clear and leave no doubt as to the intention of the contracting parties, the
literal meaning shall control. However, in order to judge the intention of the parties, their
contemporaneous and subsequent acts should be considered.
The contract of sale between Wonderland and petitioners did not materialize. But it was
admitted that petitioners received the proceeds of the promissory notes obtained from
respondent bank.
Sec. 22 of the Civil Code provides:
Every person who through an act of performance by another, or any other means, acquires
or comes into possession of something at the expense of the latter without just or legal
ground, shall return the same to him.
Petitioners had no legal or just ground to retain the proceeds of the loan at the expense of
private respondent. Neither could petitioners excuse themselves and hold Wonderland still
liable to pay the loan upon the rescission of their sales contract. If petitioners sustained
damages as a result of the rescission, they should have impleaded Wonderland and asked
damages. The non-inclusion of a necessary party does not prevent the court from
proceeding in the action, and the judgment rendered therein shall be without prejudice to
the rights of such necessary party. But respondent appellate court did not err in holding that
petitioners are duty-bound under the law to pay the claims of respondent bank from whom
they had obtained the loan proceeds.
WHEREFORE, the petition is DENIED for lack of merit. The assailed decision of the Court of
Appeals dated October 17, 1994 is AFFIRMED. Costs against petitioners.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

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June 26, 1922

In the matter of the Involuntary insolvency of U. DE POLI.

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G.R. No. L-4080

September 21, 1953

JOSE P. MARTINEZ, as administrator of the Instate Estate of Pedro Rodriguez,

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G.R. No. 129918 July 9, 1998

DAVIDE, JR., J.:

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