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.

Delgado, Flores, & Macapagal for appellant.

Ramon B. de los Reyes and Angel G. Ilagan for appellee.

SYLLABUS

1. WAREHOUSE RECEIPTS; QUEDANS; INDORSEMENT THEREON;

MORTGAGE OR PLEDGE OF WAREHOUSE RECEIPT. — 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 if the property covered by the quedans or
warehouse receipts is lost later 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.

DECISION

MONTEMAYOR , J : p

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 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 Paci c
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 and pressure brought to bear by the bank.
Under the theory and claim that 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 good
price which was about P25 per picul in order to avoid its possible loss due to the
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 invasion, but that the bank refused the 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, rst, 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 sells said sugar for them, or the planters nd
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 led before the trial court and also in the brief for appellant led before
us. According to law, the mortgagee 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 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 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 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 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 to the bank.
In the course of the discussion of this case among the members of the Tribunal,
one or two of 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
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 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 rst 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 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 and dispose 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 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 cases, we are quoting a portion of the decisions of this court in two of these cases
cited which are typical.
"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 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, 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 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 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 the appellee incurred the loss. In the rst 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 for causes 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
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 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 of cial 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 of cials offered the 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 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.
In view of the foregoing, the decision appealed from is hereby af rmed, with
costs.
Bengzon, Padilla, Tuason, Reyes, Jugo, Bautista Angelo and Labrador, JJ., concur.

Separate Opinion s
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 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 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 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 the
transfer 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. The plaintiff has appealed.
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 The applicable legal provision is section 41 of Act No. 2137, otherwise known 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
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 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 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 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 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 retro is 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 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 in 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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