BANK OF THE PHILIPPINE ISLANDS V. J.R.

HERRIDGE

47 Phil. 57 / G.R. Nos. L-21000,21002-21004,and 21006 December 20/1924

Parties:

Bank of the Philippine Island, et al. --- claimants-appellees

J.R. Herridge---assignee of the insolvent estate of Umberto de Poli

Bowring and Co., CT. Bowring and Co.Ltd., and T.R. Yangco---creditors-appellants

Facts :

The insolvent Umberto de Poli was for several years engaged on an extensive scale in the exportation of
Manila hemp, maguey and other products of the country. He was also a licensed public warehouseman,
though most of the goods stored in his warehouses appear to have been merchandise purchased by him
for exportation and deposited there by he himself.

In order to finance his commercial operations De Poli established credits with some of the leading
banking institutions doing business in Manila at that time, among them the Hongkong & Shanghai
Banking Corporation, the Bank of the Philippine Islands, the Asia Banking Corporation, the Chartered
Bank of India, Australia and China, and the American Foreign Banking Corporation. The methods by
which he carried on his business with the various banks was practically the same in each case and does
not appear to have differed from the ordinary and well known commercial practice in handling export
business by merchants requiring bank credits.

De Poli opened a current account credit with the bank against which he drew his checks in payment of
the products bought by him for exportation. Upon the purchase, the products were stored in one of his
warehouses and warehouse receipts issued therefor which were endorsed by him to the bank as
security for the payment of his credit in the account current. When the goods stored by the warehouse
receipts were sold and shipped, the warehouse receipt was exchanged for shipping papers, a draft was
drawn in favor of the bank and against the foreign purchaser, with bill of landing attached, and the
entire proceeds of the export sale were received by the bank and credited to the current account of De
Poli.

On December 8, 1920, De Poli was declared insolvent by the Court of First Instance of Manila with
liabilities to the amount of several million pesos over and above his assets. An assignee was elected by
the creditors and the election was confirmed by the court on December 24, 1920. The assignee qualified
on January 4, 1921, and on the same date the clerk of the court assigned and delivered to him the
property of the estate.

Among the property taken over the assignee was the merchandise stored in the various warehouses of
the insolvent. This merchandise consisted principally of hemp, maguey and tobacco. The various banks
holding warehouse receipts issued by De Poli claim ownership of this merchandise under their
respective receipts, whereas the other creditors of the insolvent maintain that the warehouse receipts
are not negotiable, that their endorsement to the present holders conveyed no title to the property,
that they cannot be regarded as pledges of the merchandise inasmuch as they are not public documents
and the possession of the merchandise was not delivered to the claimants and that the claims of the
holders of the receipts have no preference over those of the ordinary unsecured creditors.

Issues :

The principal issue raised by the claimants is on the validity and negotiability of the warehouse receipts
issued by De Poli, whether or not they can claim ownership of the merchandise under their respective
receipts.

Ruling :

Upon hearing, the court below held that the receipts in question were valid negotiable warehouse
receipts and ordered the distribution of the hemp and maguey covered by the receipts among the
holders thereof proportionately by grades.

The warehouse receipts are identical in form with the receipt involved in the case of Roman vs. Asia
Banking Corporation (46 Phil., 705), and there held to be a valid negotiable warehouse receipt which, by
endorsement, passed the title to the merchandise described therein to the Asia Banking Corporation.

Section 2 of the Warehouse Receipts Act (No. 2137) prescribes the essential terms of such receipts and
reads as follows:

Warehouse receipts needed not be in any particular form, but every such receipt must embody within
its written or printed terms —

(a) The location of the warehouse where the goods are stored,

(b) The date of issue of the receipt,

(c) The consecutive number of the receipt,

(d) A statement whether the goods received will be delivered to the bearer, to a specified person,
or to a specified person or his order,

(e) The rate of storage charges,

(f) A description of the goods or of the packages containing them,

(g) The signature of the warehouseman, which may be made by his authorized agent,

(h) If the receipt is issued for goods of which the warehouseman is owner, either solely or jointly or
in common with others, the fact of such ownership, and
(i) A statement of the amount of advances made and of liabilities incurred for which the
warehouseman claims a lien. If the precise amount of such advances made or of such liabilities incurred
is, at the time of the issue of the receipt, unknown to the warehouseman or to his agent who issues it, a
statement of the fact that advances have been made or liabilities incurred and the purpose thereof is
sufficient.

A warehouseman shall be liable to any person injured thereby, for all damage caused by the omission
from a negotiable receipt of any of the terms herein required.

Section 7 of the reads Act:

A nonnegotiable receipt shall have plainly placed upon its face by the warehouseman issuing it
"nonnegotiable," 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.

The appellants argue that the receipts were transferred merely as security for advances or debts and
that such transfer was of no effect without a chattel mortgage or a contract of pledge under articles
1867 and 1863 of the Civil Code. This question was decided adversely to the appellants' contention in
the case of Roman vs. Asia Banking Corporation, supra. The Warehouse Receipts Act is complete in itself
and is not affected by previous legislation in conflict with its provisions or incompatible with its spirit or
purpose. Section 58 provides that within the meaning of the Act "to "purchase" includes to take as
mortgagee or pledgee" and "purchaser" includes mortgagee and pledgee." It therefore seems 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.

The appellants also maintain that baled hemp cannot be regarded as fungible goods and that the
respective warehouse receipts are only good for the identical bales of hemp for which they were issued.
This would be true if the hemp were ungraded, but we can see no reason why bales of the same
government grade of hemp may not, in certain circumstances, be regarded as fungible goods. Section 58
of the Warehouse Receipts Act defines fungible goods as follows:

"Fungible goods" means goods of which any unit is, from its nature or by mercantile custom, treated as
the equivalent of any other unit.

In the present case the warehouse receipts show how many bales of each grade were deposited; the
Government grade of each bale was clearly and permanently marked thereon and there can therefore
be no confusion of one grade with another; it is not disputed that the bales within the same grade were
of equal value and were sold by the assignee for the same price and upon the strength of the
Government grading marks. Moreover, it does not appear that any of the claimant creditors, except the
appellees, hold warehouse receipts for the goods here in question. Under these circumstances, we do
not think that the court below erred in treating the bales within each grade as fungible goods under the
definition given by the statute. It is true that sections 22 and 23 provide that the goods must be kept
separated and that the warehouseman may not commingle goods except when authorized by
agreement or custom, but these provisions are clearly intended for the benefit of the warehouseman. It
would, indeed, be strange if the warehouseman could escape his liability to the owners of the goods by
the simple process of commingling them without authorization.