Credit Transactions Cases on Warehouse Receipts Law

7/29/2019 Credit Transactions Cases on Warehouse Receipts Law

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CREDIT TRANSACTIONS CASES ON WAREHOUSE RECEIPTS LAW

May 30, 1964

G.R. No. L-16315

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs.

HAWAIIAN-PHILIPPINE COMPANY, respondent.

Office of the Solicitor General for petitioner.

Hilado and Hilado for respondent.

Dizon,J .:

This is a petition filed by the Commissioner of Internal Revenue for the review of the decision ofthe Court of Tax Appeals in C.T.A. Case No. 598 ordering him to refund to respondent

Hawaiian-Philippine Company the amount of P8,411.99 representing fixed and percentage taxesassessed against it and which the latter had deposited with the City Treasurer of Silay, OccidentalNegros.

The undisputed facts of this ease, as found by the Court of Tax Appeals, are as follows:

The petitioner, a corporation duly organized in accordance with law, is operating a sugar central

in the City of Silay, Occidental Negros. It produces centrifugal sugar from sugarcane supplied byplanters. The processed sugar is divided between the planters and the petitioner in the proportion

stipulated in the milling contracts, and thereafter is deposited in the warehouses of the latter. (Pp.

4-5, t.s.n.) For the sugar deposited by the planters, the petitioner issues the corresponding

warehouse receipts of quedans. It does not collect storage charges on the sugar deposited in itswarehouse during the first 90 days period counted from the time it is extracted from the

sugarcane. Upon the lapse of the first ninety days and up to the beginning of the next milling

season, it collects a fee of P0.30 per picul a month. Henceforth, if the sugar is not yet withdrawn,a penalty of P0.25 per picul or fraction thereof a month is imposed. (Exhibits B -1, C-1, D-

1, B-2, C-2, p. 10, t.s.n.)

The storage of sugar is carried in the books of the company under Account No. 5000,

denominated Manufacturing Cost Ledger Control; the storage fees under Account No. 521620;

the expense accounts of the factory under Account No. 5200; and the so-called SugarBodegaOperations under Account No. 5216, under which is a Sub-Account No. 20, captioned,

Credits. (Pp. 16-17, t.s.n., Exhibit F.) The collections from storage after the lapse of the first90 days period are entered in the companys books as debit to CASH, and credit to Expense

Account No. 2516-20 (p. 18, t.s.n.).

The credit for storage charges decreased the deductible expense resulting in the correspondingincrease of the taxable income of the petitioner. This is reflected by the entries enclosed in

parenthesis in Exhibit G, under the heading Storage Charges. (P. 18, t.s.n.) The alleged

reason for this accounting operation is that, inasmuch as the SugarBodega Operations is


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considered as an expense account, entries under it are debits. Similarly, since Storage

Charges constitute credit, the corresponding figures (see Exhibit C) are enclosed in

parenthesis as they decrease the expenses of maintaining the sugar warehouses.

Upon investigation conducted by the Bureau, it was found that during the years 1949 to 1957, the

petitioner realized from collected storage fees a total gross receipts of P212,853.00, on the basisof which the respondent determined the petitioners liability for fixed and percentage taxes, 25%

surcharge, and administrative penalty in the aggregate amount of P8,411.99 (Exhibit 5, p. 11,

BIR rec.)

On October 20, 1958, the petitioner deposited the amount of P8,411.99 with the Office of the

City Treasurer of Silay. (Exhibits I and I-1, pp. 59-60, CTA rec.) Later, it filed its petitionfor review before this Court (Exhibit K, p. 25, CTA rec.)

After due hearing the Court of Tax Appeals rendered the appealed decision.

The only issue to be resolved in the case at bar is whether or not, upon the facts stated above,petitioner is a warehouseman liable for the payment of the fixed and percentage taxes prescribedin Sections 182 and 191 of the National Internal Revenue Code which read as follows:

SEC. 182. FIXED TAXES (a) ON BUSINESS (1) PERSONS SUBJECT TO PERCENTAGETAX.Unless otherwise provided every person engaging in a business on which the percentage

tax is imposed shall pay a fixed annual tax of twenty pesos. .

SEC. 191. PERCENTAGE TAX ON ROAD, BUILDING, IRRIGATION, ARTESIAN WELL,

WATERWORKS, AND OTHER CONSTRUCTION WORK CONTRACTORS,

PROPRIETORS OR OPERATORS OF DOCKYARD, AND OTHERS. warehousemen;

plumbers, smiths; house or sign painters; lithographers, publishers, except those engaged in thepublication or printing and publication of any newspaper, magazine, review or bulletin which

appear at regular intervals with fixed prices for subscription and sale, and which is not devotedprincipally to the publication of advertisements; printers and bookbinders, business agents and

other independent contractors, shall pay a tax equivalent to THREE PERCENTUM of their gross

receipts. .

Respondent disclaims liability under the provisions quoted above, alleging that it is not engaged

the business of storing its planters sugar for profit; that the maintenance of its warehouses is

merely incidental to its business of manufacturing sugar and in compliance with its obligation toits planters. We find this to be without merit.

It is clear from the facts of the case that, after manufacturing the sugar of its planters, respondentstores it in its warehouses and issues the corresponding quedans to the planters who own the

sugar; that while the sugar is stored free during the first ninety days from the date the it

quedans are issued, the undisputed fact is that, upon the expiration of said period, respondentcharger, and collects storage fees; that for the period beginning 1949 to 1957, respondents total

gross receipts from this particular enterprise amounted to P212,853.00.


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A warehouseman has been defined as one who receives and stores goods of another for

compensation (44 Words and Phrases, p. 635). For one to be considered engaged in the

warehousing business, therefore, it is sufficient that he receives goods owned by another forstorage, and collects fees in connection with the same. In fact, Section 2 of the General Bonded

Warehouse Act, as amended, defines a warehouseman as a person engaged in the business of

receiving commodity for storage.

That respondent stores its planters sugar free of charge for the first ninety days does not exempt

it from liability under the legal provisions under consideration. Were such fact sufficient for thatpurpose, the law imposing the tax would be rendered ineffectual.

Neither is the fact that respondents warehousing business is carried in addition to, or in relationwith, the operation of its sugar central sufficient to exempt it from payment of the tax prescribed

in the legal provisions quoted heretofore Under Section 178 of the National Internal Revenue

Code, the tax on business is payable for every separate or distinct establishment or place where

business subject to the tax is conducted, and one line of business or occupation does not become

exempt by being conducted with some other business or occupation for which such tax has beenpaid.

Lastly, respondents contention that the imposition of the tax under consideration would amount

to double taxation is likewise without merit. As is clear from the facts, respondents warehousing

business, although carried on in relation to the operation of its sugar central, is a distinct andseparate business taxable under a different provision of the Tax Code. There can be no double

taxation where the State merely imposes a tax on every separate and distinct business in which a

party is engaged. Moreover, in Manufacturers Life insurance Co. vs. Meer, G.R. No. L-2910,

June 29, 1951; City of Manila vs. Inter-Island Gas service, G.R. L-8799, August 31, 1956, Wehave ruled that there is no prohibition against double or multiple taxation in this jurisdiction.

WHEREFORE, the decision appealed from is reversed and set aside, with costs.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera,, Paredesand Makalintal, JJ., concur.

Regala, J., took no part.


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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 .:

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 LuzonSurety Co., jointly and severally, to pay plaintiff the sum of P4,920 with legal interestfrom 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 thesum 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. OnFebruary 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, theLuzon 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 ismade, 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, forwhich he issued receipts, Exhibits A, B, C, and D. After he was licensed as bondedwarehouseman, 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


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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 underhis 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 hisclaim 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 inthe 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 amicablesettlement 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 Tiongfailed to settle the accounts, Gonzales prosecuted his court action..

For purposes of reference, we reproduce the assignment of errors of Go Tiong, as well as theassignment 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 BondedWarehouse 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 thepalay deposited, pursuant to the provisions of the New Civil Code.".

x x x x x x x x x

I. The trial court erred in not declaring that the amicable settlement by and betweenplaintiff-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 hisrights under the Bonded Warehouse Act by the withdrawal of his claim from the Bureau

of Commerce and the execution of the "amicable settlement".


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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 theBond.

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 thatplaintiff'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 GoTiong issued to plaintiff were ordinary receipts, not the warehouse receipts contemplated by theWarehouse 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 forstorage 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 receiptsissued 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 commoditiesdelivered 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 merelypermissive and directory and not obligatory:

SECTION 1. Persons who may issue receipts. Warehouse receipts may be issued byany 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 receiptsissued 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.


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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 understoodthat 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 ofLa Sociedad Dalisay vs. De los Reyes, 55 Phil. 452,reading as follows:

Inasmuch as the fire, according to the judgment appealed from, was neither intentionalnor 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 theresponsibility for the damages must be conditioned in his proof that the loss was by forcemajeure, 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 ofnon-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 thefollowing:

. . . . This rule proceeds upon the theory that the facts surrounding the care of the propertyby 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. ... 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 anordinary 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 presumptionof 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; Beckvs.Wilkins-Ricks Co., 102 S.E. 313, Fleishman vs. Southern R. Co., 56 S.E. 974).


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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. Itis 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 dischargethe surety:

A compromise or settlement between the creditor or obligee and the principal, by whichthe 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 theWarehouse 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 receiptissued 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 thewarehouseman, 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 ofAndreson 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 bondshall be conditioned upon the faithfulperformance of the public local grain warehouseman of all the provisions of law relatingto 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 grainfor 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 theduty 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.

EN BANC

[G.R. No. L-4080. September 21, 1953.]

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

Plaintiff-Appellant,vs. PHILIPPINE NATIONAL BANK, Defendant-Appellee.

D E C I S I O N

MONTEMAYOR,J .:

As of February 1942, the estate of Pedro Rodriguez was indebted to the defendant PhilippineNational 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 throughits 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 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 Pacificwar, 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 andpressure brought to bear by the bank.

Under the theory and claim that sometime in February 1942, when the invasion of the Provinceof 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 good price which was about P25 per picul in

order to avoid its possible loss due to the invasion, but that the bank refused the request and as aresult 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 orquedans 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 in1943, 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 andselling 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 sells said sugar for them, or the planters find


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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, themortgagee or pledgee cannot become the owner of or convert and appropriate to himself the

property mortgaged or pledged (Article 1859, old Civil Code; Article 2088, new Civil Code).

Said property continues to belong to the mortgagor or pledgor. The only remedy given to themortgagee or pledgee is to have said property sold at public auction and the proceeds of the saleapplied 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 sugaron the principle that "a thing perishes for its 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 accrued. That would mean that plaintiff's account with the

bank has been entirely liquidated and their contractual relations ended, the bank, suffering theloss 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 thewhole expected sales price of P54,952.75 should now be paid by the bank to appellant. This

second theory presupposes that despite the endorsement of the quedan, plaintiff still retained

ownership of the sugar, a position that runs counter to the first theory of transfer of ownership tothe bank.

In the course of the discussion of this case among the members of the Tribunal, one or two ofthem 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 bankshould 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 theendorsement 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 place, this claim

is inconsistent with the very theory of plaintiff-appellant that the sugar far from being sold to thebank was merely given as security for the payment of the crop loan. In the second place, the

authorities cited are not directly applicable. In those cases this court held that for purposes of

facilitating commercial transaction, the endorsee or 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

endorser or transferor, even if he were the owner of the goods, he may not take possession anddispose of the goods without the consent of the endorsee or transferee of the quedan or

warehouse receipt; that in some cases the endorsee of a quedan may sell the goods and apply theproceeds 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 cases, we are quoting a portion of the decisions of this court in twoof these cases cited which are typical.


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"As to the first cause 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 andcontrol 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, including

the three notes of P18,000 each, which were formerly secured 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 53 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 warehousereceipt, 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 quedanis not a sale but pledge or security, the transferee or endorsee does not become the owner of thegoods but that he may only have the property sold and 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 exercise due care for

the preservation of the sugar, and that the loss was due to its negligence as a result of which theappellee incurred the loss. In the first place, this question was not raised in the court below.

Plaintiff's complaint failed 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 forcauses beyond the bank's control, namely, the war.

In connection with the claim that had the bank 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 requestfor release was not made to the bank itself but directly to the official of the warehouse, the Bogo-

Medellin Milling Co. and that the bank was not aware of any such request, but that before April

9, 1942, when the Cebu branch of the defendant was closed, the bank through its officials offeredthe sugar for sale but that there were no buyers, perhaps due to the unsettled and chaotic

conditions then 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 theobligation 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


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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.

In view of the foregoing, the decision appealed from is hereby affirmed, with costs.

Bengzon, Padilla, Tuason, Reyes, Jugo, Bautista Angelo and Labrador,J J ., concur.

Separate Opinions

PARAS, C.J ., dissenting:

The plaintiff seeks to recover from the defendant Philippine National Bank the sum ofP54,952.75, representing the value of 2,198.11 piculs of sugar covered by two quedans indorsed

and delivered to the bank by the administratrix 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 sugarwas 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 PedroRodriguez 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 theindorsement 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 theindorsement of the warehouse receipts transferred the ownership of 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 thetransfer of ownership of the sugar, as the indorsement and delivery were effected merely to

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. Theplaintiff has appealed.

The applicable legal provision is section 41 of Act No. 2137, otherwise known as the WarehouseReceipts 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 abilityto convey to a purchaser in good faith for value, and also such title 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 himaccording to the terms of the receipt as fully as if the warehouseman had contracted

directly with him."


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This provision plainly states that a person to whom a negotiable receipt (such as the sugar

quedans in question) has been duly negotiated acquires title to the goods covered by the receipt,

as well as the possession of the goods through the warehouseman, as if the latter had contracteddirectly 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 thatthe loss of the article should be borne by the defendant bank. The fact that the quedans wereindorsed 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 hadalready been construed by this court in the sense that ownership passes to the indorsee, although

the quedans are indorsed and delivered merely as a security. (Sy Cong Bieng 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. Asia Banking Corporation,46 Phil., 405.)

The relation of a pledgor of a warehouse receipt, duly indorsed and delivered to the pledgee, is

substantially analogous to the relation of a vendor and vendee, with 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 of the repurchase price. If the property sold a retrois lost before being repurchased, the vendee naturally has to bear the loss, with the vendor having

nothing to repurchase. 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 thevendor 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 in 1948, without however being

liable for the difference between P54,952.75 (actual value of the sugar) and the amount of saidpayment.

The appealed judgment should therefore be reversed and the defendant bank sentenced to pay tothe plaintiff the sum of P22,128.44. chanroblesvirtualawlibrary

Pablo,J ., concurs.

Documents

Credit Transactions Cases on Warehouse Receipts Law