G.R. Nos.

L-21000, 21002-21004, and 21006 December 20, 1924

In the matter of the involuntary insolvency of Umberto de Poli. BANK OF THE PHILIPPINE ISLANDS, ET
AL., claimants-appellees,
vs.
J.R. HERRIDGE, assignee of the insolvent estate of U. de Poli, BOWRING and CO., C.T. BOWRING and
CO., LTD., and T.R. YANGCO, creditors-appellants.
Umberto de Poli was engaged on an extensive scale in the exportation of Manila hemp, maguey and other
products for several years here in the Philippines. He was also a licensed public warehouseman, though
most of the goods stored in his warehouses appear to have been merchandise purchased by him for
exportation and deposited there by his own self.
In order to finance his commercial operations, De Poli established credits with some banking institutions,
Hong Kong & Shanghai Banking Corp, BPI, Asia Banking Corp, Chartered Bank of India, Australia and
China, and American Foreign Bank Corp.
De Poli opened a current account credit with the bank (wala na specify, I guess sila tanan) against which he
drew his checks in payment of the products he bought for exportation. Upon the purchase, the products
were stored in one of his warehouses and warehouse receipts issued therefor, which he endorsed to the
bank as security for the payment in his current account. When the goods stored by the warehouse receipts
were sold and shipped, the warehouse receipt was exchanged for shipping papers, a draft was drawn in
favor of the bank and against the foreign purchaser, with an attached bill of lading. The entire proceeds
were credited to the current account of De Poli.
De Poli was eventually declared insolvent by CFI-Manila, with liabilities to the amount of several million
pesos over and above his assets. An assignee was elected by the creditors and the election was confirmed a
few days later. (Dec. 8, 1920 Dec 24, 1920). The assignee was qualified on Jan. 4, and on the same date
the clerk of court assigned and delivered to him the property of de Polis estate.
One of the properties taken over by the assignee was the merchandise stored in the various warehouses of
de Poli. It was composed mainly of hemp, maguey and tobacco. The banks holding warehouse receipts
claimed ownership of the merchandise under their respective receipts, while the other creditors
maintain that the warehouse receipts are not negotiable, that their endorsement to the present
holders conveyed no title to the property, that they cannot be regarded as pledges of the merchandise
inasmuch as they are not public documents and the possession of the merchandise was not delivered
to the claimants and that the claims of the holders of the receipts have no preference over those of the
ordinary unsecured creditors.
The banks maintain that they have stipulated that they are preferred creditors of de Poli, as evidenced by
quedans or warehouse receipts that were stored in the warehouses of de Poli, even if the hemp, etc. are non-
existence or has been disposed of at the time of the issuance of the quedans; that the hemp, etc. covered by
quedans is commingled, to a considerable extent; and it was hereby agreed, subject to the rights of other
claimants hereto and to the approval of the Court that all of the warehouse receipts of the parties shall be
adjudicated to them proportionately by grades in accordance to the quedans, in accordance with the rule
laid down in Sec. 23 of the Warehouse Receipts Law for the disposition of commingled fungible goods
Shortly after the settlement of the insolvency of the firm Wise & Co., one of the unsecured creditors of the
insolvent, presented specific written objections to the claims of the bank on the ground of the insufficiency
of the warehouse receipts, and also to the stipulation on the ground that it was entered into for the purpose
of avoiding the necessity of identifying property covered by each warehouse receipt. The Court held that
the receipts in question were valid negotiable warehouse receipts, and ordered the distribution of the hemp
and maguey covered by the receipts among the holders thereof, proportionate by grades, in accordance to
the stipulation. Some of the other unsecured creditors, namely Bowring & Co., C.T. Bowring Co., Ltd., and
Teodoro R. Yangco appeared in the case after the decision of the TC was rendered and joined with the
assignee in his motion for a rehearing, and in his appeal to the SC.
The appellants (the unsecured creditors) attacked the decision, asserting that there was not a single
expression in that receipt, or in any of those now in question, from which the court could or can say that the
parties intended to make them negotiable receipts, which was also stated in the TCs decision. Appellants
state that it is very clear from the circumstances under which they were issued that they did not intend to
make the receipts negotiable. The SC replied that these rest mostly on misconceptions.
Sec. 2 of the Warehouse Receipts Act states the essential terms of such receipts. Sec. 7 states that: A nonnegotiable
receipt shall have, plainly placed upon his face by the warehouseman issuing it, nonnegotiable or not negotiable.
In case of the warehousemans failure to do so, a holder of the receipt who purchased it for value supposing it to be
negotiable may, at his option, treat such receipt as imposing upon the warehouseman the same liabilities he would
have incurred had the receipt been negotiable. Since all of the receipts issued by de Poli are nearly identical in
nature, none of the receipts are marked as nonnegotiable or not negotiable, and is endorsed as Umberto de Poli.
Sec. 2 of the Act does not state whether the goods received are to be delivered to bearer, or to a specific person or to
his order. The intention to make it a negotiable warehouse receipt appears quite clearly from the document (the
receipt) itself. De Poli deposited the goods in his own warehouse; the warehouse receipts state that he is the owner
of the deposited goods; there is no statement that the goods are to be delivered to the bearer of the receipt or to a
specified person, and the presumption must necessarily be that the goods are in the warehouse, subject to the oder of
their owner De Poli. In his dual capacity of warehouseman and original holder of the receipt, de Poli was the only
party instrument at the time of its execution and the interpretation he gave it at that time must therefore be
considered controlling as to its intent.
The appellants argue that the receipts were transferred merely as security for advances or debts and that such
transfer was of no effect without a chattel mortgage or a contract of pledge. This was decided adversely by the
Court, stating that the Warehouse Receipts Act is complete in itself and is not affected by previous legislation in
conflict with its provisions or incompatible with its spirit or purpose. Sec. 58 provides that, as to the legal title of the
property covered by a warehouse receipt, a pledge is on the same footing as a vendee, except that a pledge is under
obligation to surrender his title upon payment of the debt.
Appellants also maintain that baled hemp cannot be regarded as fungible goods, and that the warehouse receipts
were only good for identical bales of hemp for which they were issued. The Courts disagree. It would have been true
if the hemp were ungraded, but the Court can see no reason why bales of the same government grade of hemp may
not be regarded as fungible goods. The receipts clearly show how many bales of each grade were deposited, and
each grade of bale was clearly and permanently marked thereon, therefore no confusion can be made. It also does
not appear that any of the claimant creditors, except for the banks, hold warehouse receipts for the goods here in
question. While Sec. 22-23 of the Act provide that the goods must be kept separate and that the warehouseman may
not commingle goods except when authorized by agreement or custom, but this is intended for the benefit of the
warehouseman. In the present case, the holders of the receipts have impliedly ratified the acts of the warehouseman
through the pooling stipulation.

SEPARATE CLAIMS OF EACH BANK
BPI and Guaranty Trust Co. of New York
- BPIs claim is supported by 4 warehouse receipts. Subsequent to the pooling agreement, these warehouse
receipts were signed, endorsed and delivered to the Guaranty Trust Co. of New York, which was allowed to
intervene as a party under a stipulation made in Oct. 18, 1921.
- Nov. 16, 1920 De Poli executed and delivered to BPI a chattel mortgage on the same property described
in the receipts, which was not mentioned in the warehouse receipts. The appellants argue that the
obligations created by the warehouse receipts were extinguished by the chattel mortgage, thus the validity
must now be determined by Chattel Mortgage Law and not of Warehouse Receipt Acts.
- The Court held that novations are never presumed, and must be clearly proven. There is no evidence in
whatever record to show that a novation was intended. The chattel mortgage was evidently taken as
additional security for the funds advanced by the bank, and the transaction was brought about through a
misconception of the relative values of the warehouse receipts and chattel mortgages. Since the warehouse
receipts transferred the title to the goods and to the bank, the chattel mortgage was unnecessary and
inefficacious, and may be disregarded.

Hong Kong & Shanghai Banking Corporation
- Appellee holds warehouse receipts for hemp, issued by De Poli and endorsed and delivered to the said bank
on Nov. 8, 1920. Appellants maintain that the bank, at the time of the delivery to it of the warehouse
receipts, had reasonable cause to believe that de Poli was insolvent, therefore the receipts constituted illegal
preferences under Insolvency Law, thus null and void. No records exist to prove this contention.
Chartered Bank of India, Australia and China
- The appellants contend that the court erred in permitting counsel for the claimant bank to retract a
withdrawal of its claim under one of the warehouse receipts. It appears from the evidence that during the
examination of the local manager of the claimant bank, the counsel of the bank withdrew the claim under
the warehouse receipt in question, being under the impression that witnesss answer indicated that the bank
had knowledge of De Polis pending insolvency at the time the receipt was delivered to the bank. Counsel
explained that the witnesss Scottish accent made him misunderstand and did not realize his error until he
read the transcript. The trial court, within its sound discretion, has the power to allow the reinstatement of
the claim.
- Appellants also argue that the manager of the bank was informed of De Polis financial difficulties,
therefore he had reasonable cause to believe that De Poli was insolvent, and that the transaction was an
illegal preference. The manager of claimant bank denied any knowledge of pending insolvency, a fact that
de Poli himself concurred, adding that he also lied and said his financial capabilities were good(?).
- The same witnesses also show that the bank advanced the sum of P20,000 to De Poli against the same
hemp covered by a certain warehouse receipt, and that upon shipment to Manila, the bill of lading were
made in favor of the Chartered Bank and forwarded to it at Manila, and upon arrival of the hemp De Poli
gave the trust receipt to the bank for the bill of Lading, obtaining possession of the hemp with the
understanding that the warehouse receipt should be issued to the bank, and it was in compliance with that
agreement previously made. Therefore, no illegal preference.
Asia Banking Corp
- Appellants contend that the warehouse receipts were illegal preferences on the assumption that Asia
Banking must have reasonable reasons to believe that de Poli was insolvent, when the three receipts in
question were received. Claimant bank refutes this contention.