DEPOSIT

1. BPI vs. Intermediate Appellate Court

Facts: Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings account and a peso current
account. An application for a dollar draft was accomplished by Virgillo Garcia branch manager of COMTRUST
payable to a certain Leovigilda Dizon. Garcia indicated that the amount was to be charged to the dollar savings
account of the Zshornacks. There was no indication of the name of the purchaser of the dollar draft. Comtrust
issued a check payable to the order of Dizon. When Zshornack noticed the withdrawal from his account, he
demanded an explainaiton from the bank.

In its answer, to justify its act of withdrawing from its depositor’s savings account, the bank has adopted
inconsistent theories. First, it still maintains that the peso value of the amount withdrawn was given to Atty.
Ernesto Zshornack, Jr. when the latter encashed the Manilabank Cashier’s Check. At the same time, the bank
claims that the withdrawal was made pursuant to an agreement where Zshornack allegedly authorized the
bank to withdraw from his dollar savings account such amount which, when converted to pesos, would be
needed to fund his peso current account. If indeed the peso equivalent of the amount withdrawn from the
dollar account was credited to the peso current account, why did the bank still have to pay Ernesto?

At any rate, both explanations are unavailing. the first explanation, petitioner bank has not shown how the
transaction involving the cashier’s check is related to the transaction involving the dollar draft in favor of Dizon
financed by the withdrawal from Rizaldy’s dollar account. The two transactions appear entirely independent of
each other. Moreover, Ernesto Zshornack, Jr., possesses a personality distinct and separate from Rizaldy
Zshornack. Payment made to Ernesto cannot be considered payment to Rizaldy.
As to the second explanation, even if we assume that there was such an agreement, the evidence do not show
that the withdrawal was made pursuant to it.

Issue: 1. W/N the contract between petitioner and respondent bank is a deposit?
2. W/N the contract is void

Held: 1.Yes. The document which embodies the contract states that the US$3,000.00 was received by the
bank for safekeeping. The subsequent acts of the parties also show that the intent of the parties was really for
the bank to safely keep the dollars and to return it to Zshornack at a later time. Thus, Zshornack demanded
the return of the money on May 10, 1976, or over five months later.

The above arrangement is that contract defined under Article 1962, New Civil Code, which reads: Art. 1962. A
deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of
safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal
purpose of the contract, there is no deposit but some other contract.

2. Yes. Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within one
business day from receipt, is a transaction which is not authorized by CB Circular No. 20, it must be considered
as one which falls under the general class of prohibited transactions. Hence, pursuant to Article 5 of the Civil
Code, it is void, having been executed against the provisions of a mandatory/prohibitory law. More
importantly, it affords neither of the parties a cause of action against the other.

2. Sia vs Court of Appeals 222 SCRA 24 (1993)

Facts: Luzan Sia rented the Safety Deposit Box No. 54 of SBTC (Security Bank and Trust Company) wherein he
placed his collection of stamps. The said safety deposit box was at the bottom/lowest level of the safety
deposit boxes of the bank at its Binondo Branch. During the floods that took place in 1985 and 1986,
floodwater seeped into the safety deposit box leased by the plaintiff and damage the stamps collection. Sia
claimed for damages, but SBTC refused, saying that what happened was a fortuitous event. It also invoked two
clauses from their contract: “

"9. The liability of the Bank by reason of the lease, is limited to the exercise of the diligence to
prevent the opening of the safe by any person other than the Renter, his authorized agent or legal
representative;

"13. The Bank is not a depository of the contents of the safe and it has neither the possession nor
the control of the same. The Bank has no interest whatsoever in said contents, except as herein
provided, and it assumes absolutely no liability in connection therewith."

The defendant bank also contended that its contract was one of lease and not of deposit; and that the
destruction of the plaintiff's stamps collection was due to a calamity beyond obligation on its part to notify the
plaintiff about the floodwaters that inundated its premises at Binondo branch.
RTC Manila ruled in favor of Sia, because bank was negligent. CA reversed the same, ruling in favor of the
Bank, because the agreement was a lease and not deposit. SBTC was absolved latter from any liability.

Issue: Whether or not the agreement between the parties is one of lease
Held: No, rather it is a special kind of deposit. The contract for the use of a safety deposit box is not a
contract of lease governed by the Civil Code. The relation between a bank renting out safe deposit boxes and
its customer with respect to the contents of the box is that of a bailor and bailee, the bailment being for hire
and mutual benefit has been adopted in this jurisdiction.

A contract of deposit may be entered into orally or in writing [Art. 1969, Civil Code] and, pursuant to Article
1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals, good customs, public order or
public policy.

The depositary’s responsibility for the safekeeping of the objects deposited in the case at bar is governed by
Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is
found guilty of fraud, negligence, delay or contravention of the tenor of the agreement [Art. 1170, id.]. In the
absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to
be observed [Art. 1173, id.].

Hence, any stipulation exempting the depositary from any liability, arising from the loss of the thing deposited
on account of fraud, negligence or delay would be void for being contrary to law and public policy. Therefore,
No. 9 and No. 13 of the “Lease Agreement” must be stricken down for being contrary to law and public policy;
meant to exempt SBTC from any liability for damage, loss or destruction of the contents of the safety deposit
box which may arise from its own or its agents’ fraud, negligence or delay.

The bank is, however, guilty of negligence in not notifying Sia immediately of the inundation so that the latter
could retrieve the same and prevent further deterioration and loss. Hence, the bank should compensate Sia.

3. CA Agroindustrial Dev Corp vs CA

Facts: Petitioner and Spouses Pugaos(landowner) entered into a purchase agreement over a piece of land for
Php 350, 625.00, of which price Php 75, 725.00 was paid in installment and balance was covered with 3
postdated checks. In this agreement, they stipulated that the transfer of title will be made after full payment
and the TCT will be deposited with a safety deposit box in any bank, which, in this case was Security Bank and
Trust Company, and the signature of both parties must be present before withdrawing the TCT. The lease
contract with the bank contained a provision that says the bank is not a depository and has no interest in the
contents of the safety deposit box.
Thereafter, a Mrs. Ramos offered to buy the lands from petitioner, which will give a profit of Php 280, 500.00
to petitioner, thus it agreed to a sale. Mrs. Ramos demanded the execution of a deed of sale which requires
the production of TCTs, thus, with the Pugaos, petitioner went to withdraw said TCTs from the bank, but, the
safety deposit box was empty. Failing to produce said TCTs, Mrs. Ramos withdrew her offer to buy, which
resulted to the loss of expected profit of said amount. Petitioner now files a suit for damages against
respondent. Petitioner alleged that the contract between the respondent and itself is a contract of deposit,
thus, the respondent is obliged to keep the thing safely and to return it when required by the depositor, which
gives the liability to respondent in case it is lost. But respondent averred that there was an existing contract of
lease between them, thus, stipulations in the contract must prevail, and because there was a stipulation that
the respondent is not a depository, it must not be held liable in case of loss.
Issue : Whether or not the contract between the parties is a contract of lease.

Held: No. It is a contract of deposit. It is a special kind of deposit. It cannot be characterized as an ordinary
contract of lease under the NCC( Art. 1643) because the full and absolute possession and control of the safety
deposit box was not given to the joint renters.
The natural obligation of the bank is to safekeep all the deposits therewith. Absent the existence of fraud,
negligence, delay or contravention of the tenor of the agreement in the performance of its obligations, it shall
not be liable. Any stipulation contrary to the previous sentence is void, which, in this case was contained in the
contract herein entered into. It cannot do away from its natural obligation just because it was stipulated
otherwise.
In this case, the bank was exonerated because of the fact that petitioner failed to present evidence that the
loss was due to the bank’sfraud, negligence, delay or contravention of the tenor of the agreement.

4. BANCO DE ORO v. JAPRL DEVELOPMENT CORPORATION

Facts: Banco de Oro extended financial facilities to JAPRL Development Corporation (JAPRL) amounting to
P230, 000,000 with co-respondents Rapid Forming Corporation (RFC) and Jose Arollado acting as sureties.
Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust receipts.
Petitioner bank subsequently found out that JAPRL altered and falsified its financial statements to project
itself as a viable investment. Thus, BDO demanded immediate payment. Because the demand for payment
was unheeded, petitioner bank sued JAPRL and the sureties for payment of the balance due on the trust
receipts in RTC Makati. Respondents then hastily filed a petition for rehabilitation and stay order in Calamba of
RTC .

Issue: WON petition for rehabilitation should be granted to JAPRL who fraudulently obtained loan.

Ruling: NO. Banks are entities engaged in the lending of funds obtained through deposit from the public. They
borrow the public's excess money (i.e., deposits) and lend out the same. Banks therefore redistribute wealth
in the economy by channeling idle savings to profitable investments. For this reason, banking is undeniably
imbued with public interest. Consequently, much importance is given to sound lending practices and good
corporate governance.

A finding of fraud will change the whole picture. In this event, petitioner can use the finding of fraud to move
for the dismissal of the rehabilitation case in the Calamba RTC. The protective remedy of rehabilitation was
never intended to be a refuge of a debtor guilty of fraud.

5. Citibank vs. Cabamongan

488 SCRA 517 (2006)
FACTS: The Cabamongan spouses Luis and Carmelita are both based in California, USA. The spouses opened a
foreign currency time deposit account for their children with petitioner CityBank with a 180-day term. An
impostor who claimed to be Carmelita (wife) succeeded to preterminate the time deposit after presenting
passport, credit card and other identification.

The bank personnel who attended to the transaction ignored several red flags which could have alerted the
bank as to the real identity of the person claiming to be 'Carmelita'. For one, she failed to present the
certificate of time deposit, there was also a discrepancy in her signature with that in the signature cards of the
bank. Finally, the photo in the bank's file did not look like this person claiming to be Carmelita. Despite all
these irregularities, the bank went through with the transaction, which only took 40 minutes. The document
waiver which the impostor signed was also not notarized, as required under bank's procedures.

The spouses only came to learn of the incident through a daughter-in-law who called them up in the US.
Apparently, a break-in occurred previously in their US residence and several important documents were lost to
the thief. The spouses demanded payment from the bank that refused. Hence the filing of the suit against
petitioner bank.

The spouses presented a PNP Document Examiner expert who analysed the signature and concluded that the
signature was forged, hence the discrepancy between the signature of the impostor and the one written in the
signature cards held by the bank.

Issue: Whether or not the bank is negligent and therefore should be held liable when it allowed the
pretermination of the TD in favor of the impostor

HELD: YES. The bank was indeed negligent as it failed to exercise the highest degree of care and diligence
required of it. The banking business is impressed with public interest and of paramount importance thereto is
the trust and confidence of the public in general. The Court has held that the bank "is bound to know the
signatures of its customers; and if it pays a forged check, it must be considered as making payment out of its
own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was
forged."(San Carlos Milling Ltd. vs. BPI)

It has been sufficiently shown that the signatures of Carmelita in the pretermination were forged. The
petitioner, even with its signature verification procedure failed to detect the forgeries. Citybank cannot label
its negligence as mere error. For not exercising the degree of diligence required of banking institutions, it is
liable for damages

WAREHOUSE RECEPITS LAW

1. TELENGTAN BROTHERS & SONS, INC. vs. CA, KAWASAKI KISHEN KAISHA, LTD. and SMITH, BELL &
CO., INC.

FACTS: Van Reekum Paper, Inc. entered into a contract of affreightment with thek Kawasaki for the shipment
of 468 rolls of container board liners from Savannah, Georgia to Manila. The shipment was consigned to
herein petitioner. The contract of affreightment was embodied in a bill of lading by the carrier to the shipper.
The consignee is in charge of expenses of loading and unloading .

The consignee (herein petitioner) received from the shipper photocopies of the bill of lading, consular invoice
and packing list, as well as notice of the estimated time of arrival of the cargo.
The bill of lading covered 12 containers but only 10 arrived (in the manifest).

Petitioner paid the total demurrage and additional charges to secure all the containers, but it was not able to
obtain its goods. Letters of complaint sent to the Philippine Ports Authority requesting reconsideration of the
demurrage charges, on the ground that the delay in claiming the goods was due to the alleged late arrival of
the shipping documents, the delay caused by the amendment of the manifest, and the fact that two of the
containers arrived separately from the other ten containers.

Petitioner wrote private respondent for a refund of the demurrage charges, but private respondent replied it
could not modify the rules or authorize refunds of the stipulated tariffs. Private respondents claimed that
collection of container charges was authorized by §§ 2, 23 and 29 of the bill of lading and that they were not
free to waive these charges because under the United States Shipping Act of 1916 it was unlawful for any
common carrier engaged in transportation involving the foreign commerce of the United States to charge or
collect a greater or lesser compensation that the rates and charges specified in its tariffs on file with the
Federal Maritime Commission.

Petitioner's argument that it is not bound by the bill of lading issued by K-Line because it is a contract of
adhesion, whose terms as set forth at the back are in small prints and are hardly readable.

ISSUE: Whether or not a bill of lading operates as a contract.

RULING: NO. Now a bill of lading is both a receipt and a contract. As a contract, its terms and conditions are
conclusive on the parties, including the consignee. What we said in one case mutatis mutandis applies to this
case: A bill of lading operates both as a receipt and a contract. .
. . . As a contract, it names the contracting parties which include the consignee, fixes the route, destination,
freight rate or charges, and stipulates the rights and obligations assumed by the parties . . . . By receiving the
bill of lading, it assented to the terms of the consignment contained therein, and became bound thereby, so
far as the conditions named are reasonable in the eyes of the law. Since neither appellant nor appellee
alleges that any provision therein is contrary to law, morals, good customs, public policy or public order·and
indeed we found none·the validity of the Bill of Lading must be sustained and the provisions therein properly
applies to resolve the conflict between the parties.

2. BPI vs. Intermediate Appellate Court GR# L-66826, August 19, 1988

Facts: Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings account and a peso current
account. An application for a dollar draft was accomplished by Virgillo Garcia branch manager of COMTRUST
payable to a certain Leovigilda Dizon. In the application, Garcia indicated that the amount was to be charged
to the dolar savings account of the Zshornacks. There was no indication of the name of the purchaser of the
dollar draft. Comtrust issued a check payable to the order of Dizon. When Zshornack noticed the withdrawal
from his account, he demanded an explainaton from the bank. In its answer, Comtrust claimed that the peso
value of the withdrawal was given to Atty. Ernesto Zshornack, brother of Rizaldy. When he encashed with
COMTRUST a cashiers check for P8450 issued by the manila banking corporation payable to Ernesto.
Issue: Whether the contract between petitioner and respondent bank is a deposit?

Ruling: Yes. The document which embodies the contract states that the US$3,000.00 was received by the
bank for safekeeping. The subsequent acts of the parties also show that the intent of the parties was really for
the bank to safely keep the dollars and to return it to Zshornack at a later time. Thus, Zshornack demanded
the return of the money on May 10, 1976, or over five months later.

The above arrangement is that contract defined under Article 1962, New Civil Code, which reads:
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the
obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the
principal purpose of the contract, there is no deposit but some other contract.

Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within one business
day from receipt, is a transaction which is not authorized by CB Circular No. 20, it must be considered as one
which falls under the general class of prohibited transactions. Hence, pursuant to Article 5 of the Civil Code, it
is void, having been executed against the provisions of a mandatory/prohibitory law. More importantly, it
affords neither of the parties a cause of action against the other. "When the nullity proceeds from the illegality
of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari
delicto, they shall have no cause of action against each other. . ." [Art. 1411, New Civil Code.] The only remedy
is one on behalf of the State to prosecute the parties for violating the law
.
3. Roman vs. Asia Banking Corporation

Facts: Felisa Roman claims the 576 bundles of tobacco under and by virtue of the instrument, and on
November 25, 1920, Felisa Roman reported the said Asia Banking Corporation of her contention, a copy of
which notification is hereto attached and made to part hereof and marked Exhibit B.
An insolvency proceedings were filed and the 576 bundles of tobacco were in possession of U. de Poli and
now are in possession of the assignee. U. de Poli, for value received, issued to remain, covering aforesaid
576 packages of tobacco, to the Asia Banking Corporation .
The 576 lumps of tobacco are part and parcel of the 2,777 lumps purchased by U. de Poli from Felisa RomanU.
de Poli certifies that he is the sole owner of the merchandise therein described.
The warehouse receipt is endorced in blank "Umberto de Poli;" it is not marked "non-negotiable" or "not
negotiable."
The order appealed from is based on the theory that the tobacco was transferred to the Asian 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.
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.
Issue: Whether or not the warehouse receipt is negotiable such that the claim of Asian Banking Corporation
is stronger over the claim of Roman
Ruling: Yes. A warehouse receipt, like any other document, must be interpreted according to its evident intent
(Civil Code, articles 1281 et seq.) and it is 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 "by
order" are used instead of "to order" is very evidently merely a clerical or grammatical error. If any intelligent
meaning is attacked to the phrase "They remain deposited in these warehouses by order of Mr. U. de Poli" it
must be held to mean "They are deposited in these warehouses at the order of Mr. U. de Poli. " The phrase
must be construed to mean that U. de Poli was the authorized person 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, which immediately
demonstrates the intention of U. de Poli and of the appellant bank, by the employment of the phrase "by
order of Mr. U. de Poli" to make the receipt of the receipt and the transfer to the very transfer, which then
and there made by such endorsement in blank and delivery of the receipt to the blank .
As stated above, the receipt was not marked "non-negotiable." Under modern statutes of the negotiability of
warehouse receipts has been enlarged, the statutes having the effect of making such receipts negotiable
unless marked "non-negotiable."
We therefore hold that the warehouse receipts in controversy was negotiable and that the rights of the
endorsee, the appellant, Asia Banking Corporation are superior to the seller of the appellee, Roman and
should be given preference over the latter.

4. RAMON GONZALES vs GO TIONG and LUZON SURETY CO., INC G.R. No. L-11776
08/30/1958
FACTS: Go Tiong obtained a license to engage in the business of a bonded warehouseman being an
owner of a rice mill and warehouse. To secure the performance of his obligations as such bonded
warehouseman, Luzon Surety Co. executed a bond 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. 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 for he issued ordinary receipts. After he was
licensed as bonded warehouseman, Go Tiong again received various deliveries of palay from plaintiff or which
he issued the corresponding receipts, On or about March 15, 1953, plaintiff demanded from Go Tiong the
value of his deposits for which he was told to come back twice until the warehouse got burnt down.

ISSUE: WON the case at bar falls under the warehouse receipts law, and not the Civil Code?

HELD: Yes. Any deposit made with him as a bonded warehouseman must necessarily be governed by the
provisions of the warehouse receipts law. 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 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. 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. (QUEDANS: Warehouse receipts that cover sugar)

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.

5. LUA KIAN v. MANILA RAILROAD COMPANY and MANILA PORT SERVICE

FACTS: The present suit was filed by Lua Kian against the Manila Railroad Co. and Manila Port Service for the
recovery of the invoice value of imported evaporated "Carnation" milk alleged to have been undelivered.
Defendant Manila Port Service as a subsidiary of defendant Manila Railroad Company operated the arrastre
service at the Port of Manila under and pursuant to the Management Contract entered into by and between
the Bureau of Customs and defendant Manila Port Service. Plaintiff Lua Kian imported 2,000 cases of
Carnation Milk from the Carnation Company of San Francisco, California, and shipped on Board SS "GOLDEN
BEAR" per Bill of Lading No. 17.Out of the aforesaid shipment of 2,000 cases of Carnation Milk per Bill of
Lading No. 17, only 1,829 cases marked `LUA KIAN 1458' were discharged from the vessel S`GOLDEN BEAR'
and received by defendant Manila Port Service per pertinent tally sheets issued by the said carrying vessel.
Discharged from the same vessel on the same date unto the custody of defendant Manila Port Service were
3,171 cases of Carnation Milk marked "CEBU UNITED 4860-PH-MANILA" consigned to Cebu United Enterprises,
per Bill of Lading No. 18.Defendant Manila Port Service delivered to the plaintiff thru its broker, Ildefonso
Tionloc, Inc. 1,913 cases of Carnation Milk market "LUA KIAN 1458" per pertinent gate passes and broker's
deliver receipts. A provisional claim was filed by the consignee's broker for and in behalf of the plaintiff with
defendant Manila Port Service.
The invoice value of the 87 cases of Carnation Milk claimed by the plaintiff to have been short-delivered by
defendant Manila Port Service is P1,183.11 while the invoice value of the 87 cases of Carnation Milk claimed
by the defendant Manila Port Service to have been over-delivered by it to plaintiff is P1,130.65.
The 1,913 cases of Carnation mentioned in paragraph 5 hereof were taken by the broker at Pier 13, Shed 3,
sometime in February, 1960where at the time, there were stored therein, aside from the shipmen involved
herein, 1000 cases of Carnation Milk bearing the same marks and also consigned to plaintiff Lua Kian but had
been discharged from SS `STEEL ADVOCATE' and covered by Bill of Lading No. 11.Lua Kian as consignee thereof
filed a claim for short-delivery again defendant Manila Port Service, and said defendant Manila Port Service
paid Lua Kian plaintiff herein, P750.00 in settlement of its claim.
Defendants appealed to the Supreme Court and contend that they should not be made to answer for the
undelivered cases of milk, insisting that Manila Port Service was bound to deliver only
1,829 cases to Lua Kian and that it had there before in fact over-delivered to the latter.

ISSUE: Whether defendant Manila Port Service is liable for the undelivered cases of “Carnation” milk to
petitioner due to improper marking.
RULING: Yes. The bill of lading in favor of Cebu United Enterprises indicated that only 3,000 cases were due to
said consignee, although 3,171 cases were marked in its favor. Lua Kian whose bill of lading on the other hand
indicated that it should receive 171 cases more. The legal relationship between an arrastre operator and the
consignee is akin to that of a depositor and warehouseman. As custodian of the goods discharged from the
vessel, it was defendant arrastre operator's duty, like that of any ordinary depositary, to take good care of the
goods and to turn them over to the party entitled to their possession. The said defendant should have
withheld delivery because of the discrepancy between the bill of lading and the markings and conducted its
own investigation, not unlike that under Section 18 of the Warehouse Receipts Law, or called upon the parties,
to interplead, such as in a case under Section 17 of the same law, in order to determine the rightful owner of
the goods.
It is true that Section 12 of the Management Contract exempts the arrastre operator from responsibility form
is delivery or non-delivery due to improper or insufficient marking. It cannot however excuse the defendant
from liability in this case because the bill of lading showed that only 3,000 cases were consigned to Cebu
United Enterprises. The fact that the excess of171 cases were marked for Cebu United Enterprises and that
the consignment to Lua Kian was 171 cases less than the 2,000 in the bill of lading, should have been sufficient
reason for the defendant Manila Port Service to withhold the goods pending determination of their rightful
ownership.
PLEDGE
6. PARAY v. RODRIGUEZ, ET AL., G.R. No. 132287 (JANUARY 24, 2006)
FACTS: Respondents were the owners of shares of stock in Quirino-Leonor-Rodriguez Realty Inc. In 1979 to 1980,
respondents secured by way of pledge of some of their shares of stock to petitioners Bonifacio and Faustina Paray
(“Parays”) the payment of certain loan obligations.

When the Parays attempted to foreclose the pledges on account of respondents’ failure to pay their loans,
respondents filed complaints with RTC of Cebu City. The actions sought the declaration of nullity of the pledge
agreements, among others. However the RTC dismissed the complaint and gave due course to the foreclosure and sale
at public auction of the various pledges. This decision attained finality after it was affirmed by the Court of Appeals and
the Supreme Court.

Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public
auction. However, before the scheduled date of auction, all of respondents caused the consignation with the RTC Clerk
of Court of various amounts. It was claimed that respondents had attempted to tender payments to the Parays, but had
been rejected.

Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta
successfully bidding for all of the pledged shares. None of respondents participated or appeared at the auction.

Respondents instead filed a complaint with the RTC seeking the declaration of nullity of the concluded public
auction.

Respondents’ argument:
Respondents argued that their tender of payment and subsequent consignations served to extinguish their loan
obligations and discharged the pledge contracts.

Petitioners’ argument:
Petitioners countered that the auction sale was conducted pursuant to a final and executory judgment and that
the tender of payment and consignations were made long after their obligations had fallen due.

They pointed out that the amounts consigned could not extinguish the principal loan obligations of respondents
since they were not sufficient to cover the interests due on the debt. They likewise argued that the essential procedural
requisites for the auction sale had been satisfied.

ISSUES:

1. WON right of redemption exists over personal properties (such as the subject pledged shares).
2. WON the consignations made by respondents prior to the auction sale are sufficient to extinguish the loan
obligations and the subject pledged contracts.
HELD:

1. No. No law or jurisprudence establishes or affirms such right. Indeed, no such right exists.
 The right of redemption over mortgaged real property sold extrajudicially is established by Act No. 3135, as
amended. The said law does not extend the same benefit to personal property. In fact, there is no law in our statute
books which vests the right of redemption over personal property. Act No. 1508, or the Chattel Mortgage Law,
ostensibly could have served as the vehicle for any legislative intent to bestow a right of redemption over personal
property, since that law governs the extrajudicial sale of mortgaged personal property, but the statute is definitely silent
on the point.

The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution sales, more
precisely execution sales of real property.

It must be clarified that the subject sale of pledged shares was an extrajudicial sale, specifically a notarial sale, as
distinguished from a judicial sale as typified by an execution sale. Under the Civil Code, the foreclosure of a pledge
occurs extrajudicially, without intervention by the courts. All the creditor needs to do, if the credit has not been satisfied
in due time, is to proceed before a Notary Public to the sale of the thing pledged.

In this case, petitioners attempted to proceed extrajudicially with the sale of the pledged shares by public
auction. However, extrajudicial sale was stayed with the filing of Civil Cases which sought to annul the pledge contracts.
The final and executory judgment in those cases affirmed the pledge contracts and disposed them. Said judgment did
not direct the sale by public auction of the pledged shares, but instead upheld the right of the Parays to conduct such
sale at their own volition.

2. No. There is no doubt that if the principal obligation is satisfied, the pledges should be terminated as
well. Article 2098 of the Civil Code provides that the right of the creditor to retain possession of the pledged item exists
only until the debt is paid. Article 2105 of the Civil Code further clarifies that the debtor cannot ask for the return of the
thing pledged against the will of the creditor, unless and until he has paid the debt and its interest. At the same time, the
right of the pledgee to foreclose the pledge is also established under the Civil Code. When the credit has not been
satisfied in due time, the creditor may proceed with the sale by public auction under the procedure provided under
Article 2112 of the Code.
In order that the consignation could have the effect of extinguishing the pledge contracts, such amounts should
cover not just the principal loans, but also the monthly interests thereon.

In the case at bar, while the amounts consigned by respondents could answer for their respective principal loan
obligations, they were not sufficient to cover the interests due on these loans, which were pegged at the rate of 5% per
month or 60% per annum.

On the other hand, under the Civil Code, it is the pledgee, and not the pledgor, who is given the right to choose
which of the items should be sold if two or more things are pledged. No similar option is given to pledgors under the
Civil Code. Moreover, there is nothing in the Civil Code provisions governing the extrajudicial sale of pledged properties
that prohibits the pledgee of several different pledge contracts from auctioning all of the pledged properties on a single
occasion, or from the buyer at the auction sale in purchasing all the pledged properties with a single purchase price. The
relative insignificance of ascertaining the definite apportionments of the sale price to the individual shares lies in the fact
that once a pledged item is sold at auction, neither the pledgee nor the pledgor can recover whatever deficiency or
excess there may be between the purchase price and the amount of the principal obligation.