Obligations and Rights of Warehouseman

PNB vs. HON. MARCELINO L. SAYO, JR private respondents availed of the first remedy. However, when
PNB moved to execute the judgment in before the trial court,
Facts: Noah's Ark Sugar Refinery issued on several dates, the Noah’s Ark moved to have the warehouse charges and fees
Warehouse Receipts (Quedans). The receipts are substantially due them determined and thereafter sought to collect these
in the form, and contains the terms, prescribed for negotiable from petitioners.
warehouse receipts by Section 2 of the law. Subsequently,
Warehouse Receipts Nos. 18080 and 18081 were negotiated While the most appropriate remedy for private respondents
and endorsed to Luis T. Ramos, and Receipts Nos. 18086, was an action for collection we already recognized their right to
18087 and 18062 were negotiated and endorsed to Cresencia have such charges and fees determined. The import of our
K. Zoleta. Ramos and Zoleta then used the quedans as holding in the 1996 case was that private respondents were
security for two loan agreements — one for P15.6 million and likewise entitled to a judgment on their warehouse charges and
the other for P23.5 million obtained by them from PNB. The fees, and the eventual satisfaction thereof, thereby avoiding
aforementioned quedans were endorsed by them to the having to file another action to recover these charges and fees,
Philippine National Bank. which would only have further delayed the resolution of the
respective claims of the parties, and as a corollary thereto, the
Luis T. Ramos and Cresencia K. Zoleta failed to pay their loans indefinite deferment of the execution of the judgment.
upon maturity on January 9, 1990. Consequently, on March 16,
1990, the Philippine National Bank wrote to Noah's Ark The indorsement and delivery of the warehouse receipts
Sugar Refinery demanding delivery of the sugar stocks (quedans) by Ramos and Zoleta to petitioner was not to
covered by the quedans endorsed to it by Zoleta and Ramos. convey "title" to or ownership of the goods but to secure (by
Noah's Ark Sugar Refinery refused to comply with the demand way of pledge) the loans granted to Ramos and Zoleta by
alleging ownership thereof. petitioner. The warehouseman, nevertheless, is entitled to the
warehouseman's lien that attaches to the goods invokable
In 1996, the Court held that while the PNB is entitled to the against anyone who claims a right of possession thereon.
stocks of sugar as the endorsee of the quedans, delivery to it
shall be effected only upon payment of the storage fees. Sec. 8, 29 and 31 of the Warehouse Receipts Law now
Imperative is the right of the warehouseman to demand come to fore.
payment of his lien at this juncture, because, in accordance
with Section 29 of the Warehouse Receipts Law, the Sec. 8. Obligation of warehousemen to deliver. — A
warehouseman loses his lien upon goods by surrendering warehouseman, in the absence of some lawful excuse
possession thereof. In other words, the lien may be lost where provided by this Act, is bound to deliver the goods upon a
the warehouseman surrenders the possession of the goods demand made either by the holder of a receipt for the goods or
without requiring payment of his lien, because a by the depositor, if such demand is accompanied with:
warehouseman's lien is possessory in nature. (a) An offer to satisfy warehouseman's lien;
(b) An offer to surrender the receipt, if negotiable, with such
PNB alleges that (a) The lien claimed by Noah's Ark in the indorsements as would be necessary for the negotiation of the
unbelievable amount of P734,341,595.06 is illusory; and (b) receipt; and
There is no legal basis for execution of defendants' lien as (c) A readiness and willingness to sign, when the goods are
warehouseman unless and until PNB compels the delivery of delivered, an acknowledgment that they have been delivered,
the sugar stocks. if such signature is requested by the warehouseman.

Issue: Whether Noah’s Ark is entitled to the payment of In case the warehouseman refuses or fails to deliver the goods
storage fees. [YES] in compliance with a demand by the holder or depositor so
accompanied, the burden shall be upon the warehouseman to
Ruling: Under the Special Circumstances in This Case, establish the existence of a lawful excuse for such refusal.
Private Respondents May Enforce Their Warehouseman 's
Lien. Sec. 29. How the lien may be lost. — A warehouseman loses
his lien upon goods;
The remedies available to a warehouseman, such as (a) By surrendering possession thereof, or.
private respondents, to enforce his warehouseman's lien (b) By refusing to deliver the goods when a demand is made
are: with which he is bound to comply under the provisions of this
(1) To refuse to deliver the goods until his lien is satisfied, Act.
pursuant to Section 31 of the Warehouse Receipt Law;
(2) To sell the goods and apply the proceeds thereof to the Sec. 31. Warehouseman need not deliver until lien is
value of the lien pursuant to Sections 33 and 34 of the satisfied. — A warehouseman having a lien valid against the
Warehouse Receipts Law; and person demanding the goods may refuse to deliver the goods
(3) By other means allowed by law to a creditor against his to him until the lien is satisfied.
debtor, for the collection from the depositor of all charges
and advances which the depositor expressly or impliedly Simply put, where a valid demand by the lawful holder of the
contracted with the warehouseman to pay under Section quedans for the delivery of the goods is refused by the
32 of the Warehouse Receipt Law; or such other remedies warehouseman, despite the absence of a lawful excuse
allowed by law for the enforcement of a lien against provided by the statute itself, the warehouseman's lien is
personal property under Section 35 of said law. The third thereafter concomitantly lost. As to what the law deems a valid
remedy is sought judicially by suing for the unpaid demand, Section 8 enumerates what must accompany a
charges. demand; while as regards the reasons which a
warehouseman may invoke to legally refuse to effect obligation to pay the warehousing fees and charges which
delivery of the goods covered by the quedans, these are: continues to be a personal liability of the owners, i.e., the
(1) That the holder of the receipt does not satisfy the pledgors, not the pledgee, in this case.
conditions prescribed in Section 8 of the Act. (See Sec. 8,
Act No. 2137) But even as to the owners-pledgors, the warehouseman fees
and charges have ceased to accrue from the date of the
(2) That the warehouseman has legal title in himself on the rejection by Noah's Ark to heed the lawful demand by petitioner
goods, such title or right being derived directly or indirectly for the release of the goods.
from a transfer made by the depositor at the time of or
subsequent to the deposit for storage, or from the Dispositive: The court is DIRECTED to conduct further
warehouseman's lien. (Sec. 16, Act No. 2137) proceedings in said case:
(1) to allow petitioner to present its evidence on the matter of
(3) That the warehouseman has legally set up the title or right the warehouseman's lien;
of third persons as lawful defense for non-delivery of the (2) to compute the warehouseman's lien in light of the
goods as follows: foregoing observations; and
(3) to determine whether, for the relevant period, Noah's Ark
(a) Where the warehouseman has been requested, by or maintained a sufficient inventory to cover the volume of
on behalf of the person lawfully entitled to a right of sugar specified in the quedans.
property of or possession in the goods, not to make
such delivery (Sec. 10, Act No. 2137), in which case,
the warehouseman may, either as a defense to an
Extinguishment of Guaranty
action brought against him for nondelivery of the
goods, or as an original suit, whichever is appropriate, TRADE AND INVESTMENT DEVELOPMENT
require all known claimants to interplead (Sec. 17, Act CORPORATION OF THE PHILIPPINES vs. ASIA PACES
No. 2137); CORPORATION et. al

(b) Where the warehouseman had information that the Facts: On January 19, 1981, respondents Asia Paces
delivery about to be made was to one not lawfully Corporation (ASPAC) and Paces Industrial Corporation (PICO)
entitled to the possession of the goods (Sec. 14 Act entered into a sub-contracting agreement with the Electrical
No. 2137), in which case, the warehouseman shall be Projects Company of Libya (ELPCO), as main contractor, for
excused from liability for refusing to deliver the goods, the construction and erection of a double circuit bundle phase
either to the depositor or person claiming under him or conductor transmission line in the country of Libya.
to the adverse claimant, until the warehouseman has
had a reasonable time to ascertain the validity of the To finance its working capital requirements, ASPAC obtained
adverse claims or to bring legal proceedings to compel loans from foreign banks Banque Indosuez and PCI Capital
all claimants to interplead (Sec. 18, Act No. 2137); and (Hong Kong) Limited (PCI Capital) which, upon the latter’s
request, were secured by several Letters of Guarantee issued
(c) Where the goods have already been lawfully sold to by petitioner Trade and Investment Development Corporation
third persons to satisfy a warehouseman's lien, or have of the Philippines (TIDCORP), then Philippine Export and
been lawfully sold or disposed of because of their Foreign Loan Guarantee Corp. Under the Letters of Guarantee,
perishable or hazardous nature. (Sec. 36, Act No. TIDCORP irrevocably and unconditionally guaranteed full
2137). payment of ASPAC’s loan obligations to Banque Indosuez and
PCI Capital in the event of default by the latter.
(4) That the warehouseman having a lien valid against the
person demanding the goods refuses to deliver the goods In the same light, ASPAC, as principal debtor, entered into
to him until the lien is satisfied. (Sec. 31 Act No. 2137) surety agreements (Surety Bonds) with Paramount, Phoenix,
Mega Pacific and Fortune (bonding companies), as sureties,
(5) That the failure was not due to any fault on the part of the also holding themselves solidarily liable to TIDCORP, as
warehouseman, as by showing that, prior to demand for creditor, for whatever damages or liabilities the latter may incur
delivery and refusal, the goods were stolen or destroyed under the Letters of Guarantee. ASPAC eventually defaulted
by fire, flood, etc., without any negligence on his part, on its loan obligations to Banque Indosuez and PCI Capital,
unless he has contracted so as to be liable in such case, prompting them to demand payment from TIDCORP under the
or that the goods have been taken by the mistake of a Letters of Guarantee.
third person without the knowledge or implied assent of
the warehouseman, or some other justifiable ground for TIDCORP and its various creditor banks, such as Banque
non-delivery. Indosuez and PCI Capital, forged a Restructuring Agreement
on April 16, 1986, extending the maturity dates of the Letters of
Noah’s ark refusal to deliver was not a valid excuse Guarantee. The bonding companies were not privy to the
It would appear that the refusal of private respondents to Restructuring Agreement and, hence, did not give their consent
deliver the goods was not anchored on a valid excuse, i.e., to the payment extensions granted by Banque Indosuez and
non-satisfaction of the warehouseman's lien over the goods, PCI Capital, among others, in favor of TIDCORP.
but on an adverse claim of ownership. Private respondents
justified their refusal to deliver the goods by claiming that they Nevertheless, following new payment schedules, TIDCORP
"are still the legal owners of the subject quedans and the fully settled its obligations under the Letters of Guarantee to
quantity of sugar represented therein. both Banque Indosuez and PCI Capital on December 1, 1992,
and April 19 and June 4, 1991, respectively. Seeking payment
Under the circumstances, this hardly qualified as a valid, legal for the damages and liabilities it had incurred under the Letters
excuse. The loss of the warehouseman's lien, however, of Guarantee and with its previous demands therefor left
does not necessarily mean the extinguishment of the unheeded, TIDCORP filed a collection case against: (a)
ASPAC, PICO, and Balderrama on account of their obligations for a new payment scheme covering TIDCORP’s liability to the
under the deeds of undertaking; and (b) the bonding banks. In fine, considering the inoperability of Article 2079 of
companies on account of their obligations under the Surety the Civil Code in this case, the bonding companies’ liabilities to
Bonds. TIDCORP under the Surety Bonds except those issued by
Paramount and covered by its Compromise Agreement with
Issue: Whether the bonding companies’ liabilities to TIDCORP TIDCORP have not been extinguished.
under the Surety Bonds have been extinguished by the Since these obligations arose and have been duly demanded
payment extensions granted by Banque Indosuez and PCI within the coverage periods of all the Surety Bonds,
Capital to TIDCORP under the Restructuring Agreement. [NO] TIDCORP’s claim is hereby granted.

Ruling: Article 2079 of the Civil Code, equally applies to both

contracts of guaranty and suretyship which pertinently provides
Unregistered Mortgage
that:
EDILBERTO CRUZ vs. BANCOM FINANCE
“an extension granted to the debtor by the creditor without the CORPORATION (Now UNIONBANK OF THE
consent of the guarantor extinguishes the guaranty”. PHILIPPINES)

The theory behind Article 2079 is that an extension of time Facts: Brothers Rev. Fr. Edilberto Cruz and Simplicio Cruz,
given to the principal debtor by the creditor without the surety’s plaintiffs herein, were the registered owners of a parcel of
consent would deprive the surety of his right to pay the creditor agricultural land together with improvements. Sometime in May
and to be immediately subrogated to the creditor’s remedies 1978, defendant Norma Sulit, offered to purchase the land.
against the principal debtor upon the maturity date. The surety Plaintiffs’ asking price for the land was ₱700,000.00, but
is said to be entitled to protect himself against the contingency Norma only had ₱25,000.00 which Fr. Cruz accepted as
of the principal debtor or the indemnitors becoming insolvent earnest money with the agreement that titles would be
during the extended period. transferred to Norma upon payment of the balance of
₱675,000.00. Norma failed to pay the balance.
Applying these principles, the Court finds that the payment
extensions granted by Banque Indosuez and PCI Capital to But capitalizing on the close relationship of Candelaria
TIDCORP under the Restructuring Agreement did not have the Sanchez with the plaintiffs, Norma succeeded in having the
effect of extinguishing the bonding companies’ obligations to plaintiffs execute a document of sale of the land in favor of
TIDCORP under the Surety Bonds, notwithstanding the fact Candelaria who would then obtain a bank loan in her name
that said extensions were made without their consent. using the plaintiffs’ land as collateral. On the same day,
Candelaria executed another Deed of Absolute Sale over the
This is because Article 2079 of the Civil Code refers to a land in favor of Norma. In both documents, it appeared that the
payment extension granted by the creditor to the principal consideration for the sale of the land was only ₱150,000.00.
debtor without the consent of the guarantor or surety. In this Pursuant to the sale, Norma was able to effect the transfer of
case, the Surety Bonds are suretyship contracts which secure the title to the land in her name.
the debt of ASPAC, the principal debtor, under the Deeds of
Undertaking to pay TIDCORP, the creditor, the damages and In a Special Agreement dated September 1, 1978, Norma
liabilities it may incur under the Letters of Guarantee, within the assumed Candelaria’s obligation, stipulating to pay the
bounds of the bonds’ respective coverage periods and plaintiffs the said amount within six months on pain of fine or
amounts. penalty in case of non-fulfillment. Unknown to the plaintiffs,
Norma managed to obtain from Bancom in the amount of
No payment extension was, however, granted by TIDCORP in ₱569,000.00 secured by a mortgage over the land now titled in
favor of ASPAC in this regard; hence, Article 2079 of the Civil her name.
Code should not be applied with respect to the bonding
companies’ liabilities to TIDCORP under the Surety Bonds. On account of Norma’s failure to pay the amount stipulated in
the Special Agreement and her subsequent disappearance
The payment extensions granted by Banque Indosuez and PCI from her usual address, plaintiffs were prompted to file the
Capital pertain to TIDCORP’s own debt under the Letters of herein complaint for the reconveyance of the land.
Guarantee wherein it (TIDCORP) irrevocably and
unconditionally guaranteed full payment of ASPAC’s loan Meanwhile in the middle of 1980, Norma defaulted in her
obligations to the banks in the event of its (ASPAC) default. In payment to the Bank and her mortgage was foreclosed. At the
other words, the Letters of Guarantee secured ASPAC’s loan subsequent auction sale, Bancom was declared the highest
agreements to the banks. Under this arrangement, TIDCORP bidder and was issued the corresponding certificate of sale
therefore acted as a guarantor, with ASPAC as the principal over the land. Cruz brothers claim that the Deed of Sale they
debtor, and the banks as creditors. executed with Sanchez, as well as the Deed of Sale executed
between Sanchez and Sulit, was absolutely simulated.
Verily, as the Surety Bonds concern ASPAC’s debt to
TIDCORP and not TIDCORP’s debt to the banks, the Cruz brothers argue that Bancom was not a mortgagee in good
payments extensions (which conversely concern TIDCORP’s faith because, at the time it registered the real estate mortgage
debt to the banks and not ASPAC’s debt to TIDCORP) would over the subject property, their adverse claim and notice of lis
not deprive the bonding companies of their right to pay their pendens had already been annotated on the TCT (on October
creditor (TIDCORP) and to be immediately subrogated to the 30, 1979 and December 10, 1979, respectively).
latter’s remedies against the principal debtor (ASPAC) upon
the maturity date. Issue: Whether the mortgage and foreclosure were valid. [NO]

It must be stressed that these payment extensions did not Ruling: Although the Deed of Sale between Cruz brothers and
modify the terms of the Letters of Guarantee but only provided Sanchez stipulated a consideration of ₱150,000, there was
actually no exchange of money between them. Clearly, the said that they only knew of this mortgage when respondent
Deeds of Sale were executed merely to facilitate the use of the intervened in the RTC proceedings.
property as collateral to secure a loan from a bank. Being
merely a subterfuge, these agreements could not have been On the question of who has a preferential right over the
the source of any consideration for the supposed sales. property, the long-standing rule, as provided by Article 2085 of
the Civil Code, is that only the absolute owner of the property
Indeed, the execution of the two documents on the same day can constitute a valid mortgage on it. In case of foreclosure, a
sustains the position of petitioners that the Contracts of Sale sale would result in the transmission only of whatever rights the
were absolutely simulated, and that they received no seller had over of the thing sold.
consideration therefor. The failure of Sulit to take possession
of the property purportedly sold to her was a clear badge of In the instant case, the two Deeds of Sale were absolutely
simulation that rendered the whole transaction void and without simulated; hence, null and void. Thus, they did not convey any
force and effect, pursuant to Article 1409 of the Civil Code. rights that could ripen into valid titles. Necessarily, the
The fact that she was able to secure a Certificate of Title to the subsequent real estate mortgage constituted by Sulit in favor of
subject property in her name did not vest her with ownership respondent was also null and void, because the former was not
over it. A simulated deed of sale has no legal effect; the owner thereof.
consequently any transfer certificate of title (TCT) issued in
consequence thereof should be cancelled. A simulated There being no valid real estate mortgage, there could also be
contract is not a recognized mode of acquiring ownership. no valid foreclosure or valid auction sale, either. At bottom,
respondent cannot be considered either as a mortgagee or as
Issue: Whether the registration of the mortgage by Bancom a purchaser in good faith. This being so, petitioners would be in
was binding upon the Cruz brothers. [NO] the same position as they were before they executed the
simulated Deed of Sale in favor of Sanchez. They are still the
Bancom was already aware that there was an adverse claim owners of the property.
and notice of lis pendens annotated on the Certificate of Title
when it registered the mortgage on March 14, 1980. Unless
duly registered, a mortgage does not affect third parties like
herein petitioners, as provided under Section 51 of PD NO.
1529, which we reproduce hereunder:

SEC. 51. Conveyance and other dealings by registered owner.

- An owner of registered land may convey, mortgage, lease,
charge or otherwise deal with the same in accordance with
existing laws. He may use such forms of deeds, mortgages,
leases or other voluntary instruments [as] are sufficient in law.
But no deed, mortgage, lease, or other voluntary instrument
except a will, purporting to convey or affect registered land,
shall take effect as a conveyance or bind the land, but shall
operate only as a contract between the parties and as
evidence of authority to the clerk or register of deeds to make
registration.

The act of registration shall be the operative act to convey and

affect the land, and in all cases under this Act the registration
shall be made in the office of the register of deeds for the
province or city, where the land lies.

True, registration is not the operative act for a mortgage to be

binding between the parties. But to third persons, it is
indispensible. In the present case, the adverse claim and the
notice of lis pendens were annotated on the title on October
30, 1979 and December 10, 1979, respectively; the real estate
mortgage over the subject property was registered by Bancom
only on March 14, 1980. Settled in this jurisdiction is the
doctrine that a prior registration of a lien creates a preference.

Even a subsequent registration of the prior mortgage will not

diminish this preference, which retroacts to the date of the
annotation of the notice of lis pendens and the adverse claim.
Thus, Bancom’s failure to register the real estate mortgage
prior to these annotations, resulted in the mortgage being
binding only between it and the mortgagor, Sulit.

Cruz Brothers, being third parties to the mortgage, were not

bound by it. Contrary to respondent’s claim that petitioners
were in bad faith because they already had knowledge of the
existence of the mortgage in favor of respondent when they
caused the aforesaid annotations, petitioner Edilberto Cruz