G.R. No.

110581 September 21, 1994

TELENGTAN BROTHERS & SONS, INC. (LA SUERTE CIGAR & CIGARETTE), petitioner,
vs.
THE COURT OF APPEALS, KAWASAKI KISHEN KAISHA, LTD. and SMITH, BELL & CO.,
INC., respondents.

Juan, Luces, Luna and Associates for petitioner.

Bito, Lozada, Ortega & Castillo for private respondents.

MENDOZA, J.:

This is a petition for review of the decision of the Court of Appeals, 1 in CA-G.R. CV No. 09514,
affirming with modification the decision of the Regional Trial Court in a case for specific performance
brought by petitioner.

Private respondent Kawasaki Kishen Kaisha, Ltd. (K-Line) is a foreign shipping company doing
business in the Philippines, its shipping agent being respondent the Smith, Bell & Co., Inc. It is a
member of the Far East Conference, the body which fixes rates by agreement of its member-
shipowners. The conference is registered with the U.S. Federal Maritime Commission. 2

On May 8, 1979, the Van Reekum Paper, Inc. entered into a contract of affreightment with the K-
Line for the shipment of 468 rolls of container board liners from Savannah, Georgia to Manila. The
shipment was consigned to herein petitioner La Suerte Cigar & Cigarette Factory. The contract of
affreightment was embodied in Bill of Lading No. 602 issued by the carrier to the shipper. The
expenses of loading and unloading were for the account of the consignee.

The shipment was packed in 12 container vans and loaded on board the carrier's vessel,
SS Verrazano Bridge. At Tokyo, Japan, the cargo was transhipped on two vessels of the K-Line. Ten
container vans were loaded on the SS Far East Friendship, while two were loaded on the
SS Hangang Glory.

Shortly thereafter, 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.

On June 11, 1979, the SS Far East Friendship arrived at the port of Manila. Aside from the regular
advertisements in the shipping section of the Bulletin Today announcing the arrival of its vessels,
petitioner was notified in writing of the ship's arrival, together with information that container
demurrage at the rate of P4.00 per linear foot per day for the first 5 days and P8.00 per linear foot
per day after the 5th day would be charged unless the consignee took delivery of the cargo within
ten days.

On June 21, 1979, the other vessel SS Hangang Glory, carrying petitioner's two other vans, arrived
and was discharged of its contents the next day. On the same day the shipping agent Smith, Bell &
Co. released the Delivery Permit for twelve (12) containers to the broker upon payment of freight
charges on the bill of lading.
The next day, June 22, 1979, the Island Brokerage Co. presented, in behalf of petitioner, the
shipping documents to the Customs Marine Division of the Bureau of Customs. But the latter refused
to act on them because the manifest of the SS Far East Friendship covered only 10 containers,
whereas the bill of lading covered 12 containers.

The broker, therefore, sent back the manifest to the shipping agent with the request that the manifest
be amended. Smith, Bell & Co. refused on the ground that an amendment, as requested, would
violate §1005 of the Tariff and Customs Code relating to unmanifested cargo. Later, however, it
agreed to add a footnote reading "Two container vans carried by the SS Hangang Glory to complete
the shipment of twelve containers under the bill of lading."

On June 29, 1979 the manifest was picked up from the office of respondent shipping agent by an
employee of the IBC and filed with the Bureau of Customs. The manifest was approved for release
on July 3, 1979. IBC wrote Smith, Bell & Co. to make of record that entry of the shipment had been
delayed by the error in the manifest.

On July 11, 1979, when the IBC tried to secure the release of the cargo, it was informed by private
respondents' collection agent, the CBCS Guaranteed Fast Collection Services, that the free time for
removing the containers from the container yard had expired on June 26, 1979, in the case of the
SS Far East Friendship, and on July 9, in the case of the SS Hangang Glory, 3 and that demurrage
charges had begun to run on June 27, 1979 with respect to the 10 containers on the SS Far East
Friendship and on July 10, 1979 with respect to the 2 containers shipped on board the SS Hangang
Glory.

On July 13, 1979, petitioner paid P47,680.00 representing the total demurrage charges on all the
containers, but it was not able to obtain its goods. On July 16, 1979 it was able to obtain the release
of two containers and on
July 17, 1979 of one more container. It was able to obtain only a partial release of the cargo because
of the breakdown of the arrastre's equipment at the container yard.

This matter was reported by IBC in letters of complaint sent to the Philippine Ports Authority. In
addition, on July 16, 1979, petitioner sent a letter dated July 12, 1979 (Exh. I) to Smith, Bell & Co.,
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.

On July 19, 1979, petitioner paid additional charges in the amount of P20,160.00 for the period July
14-19, 1979 to secure the release of its cargo, but still petitioner was unable to get any cargo from
the remaining nine container vans. It was only the next day, July 20, 1979, that it was able to have
two more containers released from the container yard, bringing to five the total number of containers
whose contents had been delivered to it.

Subsequently, petitioner refused to pay any more demurrage charges on the ground that there was
agreement for their payment in the bill of lading and that the delay in the release of the cargo was
not due to its fault but to the breakdown of the equipment at the container yard. In all, petitioner had
paid demurrage charges from June 27 to July 19, 1979, in the total amount of P67,840.00, computed
as follows:

A. Container demurrage paid on July 13, 1979

1. Far East Friendship (Exh. H-1) June 27 — July 13 (17 days)

1st 5 days @ P4/day/foot
5 days x P40 ft. x 10 ctrns. P 8,000.00
Next 12 days @ P8/day/foot
12 days x P8 x 40 ft. x 10 ctrns. P 38,400.00

—————

P 46,400.00

2. Hangang Glory (Exh. H) July 10 — July 13 (4 days)

1st 4 days:
4 days x P4 x 40 ft. x 2 ctnrs. P 1,280.00

—————

TOTAL PAID ON JULY 13 P 47,680.00

(Exh. H-2)

B. Container demurrage paid on July 19, 1979

1. Far East Friendship

a. on 2 containers released July 16

3 days x P8 x 40 ft. x 2 ctnrs. P 1,920.00

(Exh. L-2)

b. on 1 container released July 17

4 days x P8 x 40 ft. x 7 cntrs. P 1,280.00

(Exh. L-3)

c. remaining 7 containers as of July 19

6 days x P8 x 40 ft. x 7 cntrs. P 13,440.00

(Exh. L-1)

2. Hangang Glory

a. 5th day (July 14)

1 day x P4.00 x 40 ft. x 2 cntrs. P 320.00

b. July 15-19:
 5 days x P8.00 x 40 ft. x 2 cntrs. P 3,200.00

(Exh. L)

—————

TOTAL P 20,160.00

(Exh. L-4)

—————

OVERALL TOTAL P 67,840.00

=========

On July 20, 1979 petitioner wrote private respondent for a refund of the demurrage charges, but
private respondent replied on July 25, 1979 that, as member of the Far East Conference, it could not
modify the rules or authorize refunds of the stipulated tariffs.

Petitioner, therefore, filed this suit in the RTC for specific performance to compel private respondent
carrier, through it s shipping agent, the Smith, Bell & Co., to release 7 container vans consigned to it
free of charge and for a refund of P67,840.00 which it had paid, plus attorney's fees and other
expenses of litigation. Petitioner also asked for the issuance of a writ of preliminary injunction to
restrain private respondents from charging additional demurrage.

In their amended answer, 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.

Private respondents alleged that petitioner knew that the contract of carriage was subject to the Far
East Conference rules and that the publication of the notice of reimposition of container demurrage
charges published in the shipping section of the Bulletin Today and Businessday newspapers from
February 19 — February 25, 1979 was binding upon petitioner. They contended further that the
collection of container demurrage was an international practice which is widely accepted in ports all
over the world and that it was in conformity with Republic Act No. 1407, otherwise known as the
Philippine Overseas Shipping Act of 1955.

Thereafter, a writ was issued after petitioner had posted a bond of P50,000.00 and the container
vans were released to the petitioner. On March 19, 1986, however, the RTC dismissed petitioner's
complaint. It cited the bill of lading which provided:

23. The ocean carrier shall have a lien on the goods, which shall survive delivery, for
all freight, dead freight, demurrage, damages, loss, charges, expenses and any other
sums whatsoever payable or chargeable to or for the account of the Merchant under
this bill of lading . . . .

It likewise invoked clause 29 of the bill of lading which provided:

 29. . . .The terms of the ocean carrier's applicable tariff, including tariffs covering
intermodal transportation on file with the Federal Maritime Commission and the
Interstate Commission or any other regulatory body which governs a portion of the
carriage of goods, are incorporated herein.

Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12 Rules and Regulations, referred to
above, provides:

(D) Free Time, Demurrage, and Equipment Detention at Ports in the Philippines.

Note: Philippine Customs Law prescribes all cargo discharged from vessels to be
given into custody of the Government Arrastre Contractor, appointed by Philippine
Customs who undertakes delivery to the consignee.

xxx xxx xxx

Demurrage charges on Containers with CY Cargo.

1. Free time will commence at 8:00 a.m. on the first working calendar day following
completion of discharge of the vessel. It shall expire at 12:00 p.m. (midnight) on the
tenth working calendar day, excluding Saturdays, Sundays and holidays.

Work stoppage at a terminal due to labor dispute or other force majeure as defined
by the conference preventing delivery of cargo or containers shall be excluded from
the calculation of the free time for the period of the work stoppage.

2. Demurrage charges are incurred before the container leaves the carrier's
designated CY, and shall be applicable on the container commencing the next
working calendar day following expiration of the allowable free time until the
consignee has taken delivery of the container or has fully striped the container of its
contents in the carrier's designated CY.

Demurrage charges shall be assessed hereunder:

Ordinary containers — P4.00 per linear foot of the

container per day for the first five days; P8.00 per
linear foot of the container per day, thereafter.

The RTC held that the bill of lading was the contract between the parties and, therefore, petitioner
was liable for demurrage charges. It rejected petitioner's claim of force majeure. It held:

This Court cannot also accord faith and credit on the plaintiff's claim that the delay in
the delivery of the containers was caused by the breaking down of the equipment of
the arrastre operator. Such claim was not supported with competent evidence. Let us
assume the fact that the arrastre operator's equipment broke down still plaintiff has to
pay the corresponding demurrage charges. The possibility that the equipment would
break down was not only foreseeable, but actually, foreseen, and was not caso
fortuito. 4

The RTC, therefore, ordered:

 WHEREFORE, finding the preponderance of evidence in favor of the defendants and
against the plaintiff, judgment is hereby rendered dismissing the complaint with costs
against it. Plaintiff is hereby ordered to pay defendants the sum of P36,480.00
representing demurrage charges for the detention of the seven (7) forty-footer
container vans from July 20 to August 7, 1979, with legal interest commencing on
August 7, 1979 until fully paid. And plaintiff has to pay the sum of P10,000.00, by
way of attorney's fees.

SO ORDERED.

On appeal, the case was affirmed with modification by the Court of Appeals as follows:

WHEREFORE, modified as indicated above deleting the award of attorney's fees, the
decision appealed from is hereby AFFIRMED in all other respects.

Costs against plaintiff-appellant.

SO ORDERED. 5

Hence, this petition for review in which it is contended:

1 that no demurrage lies in the absence of any showing that the

vessels had been improperly detained or that loss or damage had
been incurred as a consequence of improper detention;

2 that respondent Court's finding that private respondent Smith Bell

had promptly and on the same day amended the defective manifest is
contrary to the evidence of record.

3 that respondent Court manifestly over-looked undisputed evidence

presented by petitioner showing that the breakdown in the facilities
and equipment of the arrastre operator further delayed petitioner's
withdrawal of the cargo. 6

Petitioner prays for a reversal of the decision of the Court of Appeals and the refund to it of the
demurrage charges paid by it, with interest, as well as to pay attorney's fees and expenses of
litigation.

Our decision will be presently explained, but in brief it is this: petitioner is liable for demurrage for
delay in removing its cargo from the containers but only for the period July 3 to 13, 1979 with respect
to ten containers and from July 10 to July 13, 1979, in respect of two other containers.

First. With respect to petitioner's liability for demurrage, petitioner's contention is that the bill of lading
does not provide for the payment of container demurrage, as Clause 23 of the bill of lading only says
"demurrage," i.e., damages for the detention of vessels, and here there is no detention of vessels.
Petitioner invokes the ruling in Magellan Manufacturing Marketing Corp. v. Court of Appeals 7, where
we defined "demurrage" as follows:

Demurrage, in its strict sense, is the compensation provided for in the contract of
affreightment for the detention of the vessel beyond the time agreed on for loading
and unloading. Essentially, demurrage is the claim for damages for failure to accept
 delivery. In a broad sense, every improper detention of a vessel may be considered a
demurrage. Liability for demurrage, using the word in its strictly technical sense,
exists only when expressly stipulated in the contract. Using the term in [its broader
sense, damages in the] nature of demurrage are recoverable for a breach of the
implied obligation to load or unload the cargo with reasonable dispatch, but only by
the party to whom the duty is owed and only against one who is a party to the
shipping contract.

Whatever may be the merit of petitioner's contention as to the meaning of the word "demurrage" in
clause 23 of the bill of lading, the fact is that clause 29(a) also of the bill of lading, in relation to Rule
21 of the Far East Conference Tariff No. 28-FMC No. 12, as quoted above, specifically provides for
the payment by the consignee of demurrage for the detention of containers and other equipment
after the so-called "free time."

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 right and obligations assumed by the
parties . . . . By receiving the bill of lading, Davao Parts and Services, Inc. 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. 8

As the Court of Appeals pointed out in its appealed decision, the enforcement of the rules of the Far
East Conference and the Federal Maritime Commission is in accordance with Republic Act No.
1407, §1 of which declares that the Philippines, in common with other maritime nations, recognizes
the international character of shipping in foreign trade and existing international practices in maritime
transportation and that it is part of the national policy to cooperate with other friendly nations in the
maintenance and improvement of such practices.

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, is without merit. As we held in Servando v. Philippine Steam Navigation: 9

While it may be true that petitioner had not signed the plane ticket (Exh. 12), he is
nevertheless bound by the provisions thereof. "Such provisions have been held to be
a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latter's lack of knowledge or assent to the regulation". It is what is
known as a contract of "adhesion," in regards to which it has been said that contracts
of adhesion wherein one party imposes a ready made form of contract on the other,
as the plane ticket in the case at bar, are contracts not entirely prohibited. The one
who adheres to the contract is in reality free to reject it entirely; if he adheres, he
gives his consent. (Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462, citing Mr. Justice
JBL Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49).
Second. With respect to the period of petitioner's liability, private respondent's position is that the
"free time" expired on June 26, 1979 and demurrage began to toll on June 27, 1979, with respect to
10 containers which were unloaded from the SS Far East Friendship, while with respect to the 2
containers which were unloaded from the SS Hangang Glory, the free time expired on July 9, 1979
and demurrage began to run on July 10, 1979.

This contention is without merit. Petitioner cannot be held liable for demurrage starting June 27,
1979 on the 10 containers which arrived on the SS Far East Friendship because the delay in
obtaining release of the goods was not due to its fault. The evidence shows that because the
manifest issued by the respondent K-Line, through the Smith, Bell & Co., stated only 10 containers,
whereas the bill of lading also issued by the K-Line showed there were 12 containers, the Bureau of
Customs refused to give an entry permit to petitioner. For this reason, petitioner's broker, the IBC,
had to see the respondent's agent (Smith, Bell & Co.) on June 22, 1979 but the latter did not
immediately do something to correct the manifest. Smith, Bell & Co. was asked to "amend" the
manifest, but it refused to do so on the ground that this would violate the law. It was only on June 29,
1979 that it thought of adding instead a footnote to indicate that two other container vans — to
account for a total of 12 container vans consigned to petitioner — had been loaded on the other
vessel
SS Hangang Glory.

It is not true that the necessary correction was made on June 22, 1979, the same day the manifest
was presented to Smith, Bell & Co. There is nothing in the testimonies of witnesses of either party to
support the appellate court's finding that the footnote, explaining the apparent discrepancy between
the bill of lading and the manifest, was added on June 22, 1979 but that petitioner's representative
did not return to pick up the manifesst until June 29, 1979. To the contrary, it is more probable to
believe the petitioner's claim that the manifest was corrected only on June 29, 1979 (by which time
the "free time" had already expired), because Smith, Bell & Co. did not immediately know what to do
as it insisted it could not amend the manifest and only thought of adding a footnote on June 29, 1979
upon the suggestion of the IBC.

Now June 29, 1979 was a Friday. Again it is probable the correct manifest was presented to the
Bureau of Customs only on Monday, July 2, 1979 and, therefore, it was only on July 3 that it was
approved. It was, therefore, only from this date (July 3, 1979) that petitioner could have claimed its
cargo and charged for any delay in removing its cargo from the containers. With respect to the other
two containers which arrived on the SS Hangang Glory, demurrage was properly considered to have
accrued on July 10, 1979 since the "free time" expired on July 9.

The period of delay, however, for all the 12 containers must be deemed to have stopped on July 13,
1979, because on this date petitioner paid P47,680.00. If it was not able to get its cargo from the
container vans, it was because of the breakdown of the shifter or cranes. This breakdown cannot be
blamed on petitioners since these were cranes of the arrastre service operator. It would be unjust to
charge demurrage after July 13, 1979 since the delay in emptying the containers was not due to the
fault of the petitioner.

Indeed, there is no reason why petitioner should not get its cargo after paying all demurrage charges
due on July 13, 1979. If it paid P20,180.00 more in demurrage charges after July 13, 1979 it was
only because respondents would not release the goods. Even then petitioner was able to obtain the
release of cargo from five container vans. Its trucks were unable to load anymore cargo and returned
to petitioner's premises empty.
In sum, we hold that petitioner can be held liable for demurrage only for the period July 3-13, 1979
and that in accordance with the stipulation in its bill of lading, it is liable for demurrage only in the
amount of P28,480.00 computed as follows;

A. 10 containers ex Far East Friendship (July 3-13, 1979)

1. 1st 5 days @ P4.00/day/foot

5 days x P4 x 40 ft. x 10 ctnrs. P 8,000

2. Next 6 days @ P8.00/day/foot

6 days x P8 x 40 ft. x 10 cntrs. P 19,200 P 27,200

————

B. 2 containers ex Hangang Glory (July 10-13, 1979)

1st 4 days @ P4.00/day/foot

4 days x P4 x 40 ft. x 10 cntrs. P 1,280

————

TOTAL DEMURRAGE DUE P 28,480

=======

LESS: TOTAL PAID (P 67,840)

OVERPAYMENT (P 39,360)

As shown above there is an overpayment of P39,360.00 which should be refunded to petitioner.

WHEREFORE, the decision appealed from is SET ASIDE and another one is RENDERED,
ORDERING the private respondents to pay to petitioner the sum of P39,360.00 by way of refund,
with legal interest.

SO ORDERED.

[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.

DECISION
 MONTEMAYOR, J.:

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 Pacific 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
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, 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 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 find 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, 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 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
first 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 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 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 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 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 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

affirmed, with costs.

Bengzon, Padilla, Tuason, Reyes, Jugo, Bautista Angelo and

Labrador, JJ., concur.

Separate Opinions

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.

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.chanroble svirtualawl ibra ry