G.R. No. L-6342. January 26, 1954

This is an appeal from a decision of the Court of First Instance of
Nueva Ecija which orders the defendant to pay to the plaintiff the sum
of P3,000, with interest thereon at the rate of 6% per annum from June
26, 1940, and the costs of action.

On June 26, 1940, Laureano Atendido obtained from the Philippine
National Bank a loan of P3,000 payable in 120 days with interests at 6%
per annum from the date of maturity. To guarantee the payment of the
obligation the borrower pledged to the bank 2,000 cavanes of palay
which were then deposited in the warehouse of Cheng Siong Lam & Co.
in San Miguel, Bulacan, and to that effect the borrower endorsed in
favor of the bank the corresponding warehouse receipt. Before the
maturity of the loan, the 2,000 cavanes of palay disappeared for
unknown reasons in the warehouse. When the loan matured the borrower
failed to pay either the principal or the interest and so the present
action was instituted.

Defendant set up a special defense and a counterclaim. As regards
the former, defendant claimed that the warehouse receipt covering the
palay which was given as security having been endorsed in blank in
favor of the bank, and the palay having been lost or disappeared, he
thereby became relieved of liability. And, by way of counterclaim,
defendant claimed that, as a corollary to his theory, he is entitled to
an indemnity which represents the difference between the value of the
palay lost and the amount of his obligation.

The case was submitted on an agreed statements of facts and
thereupon the court rendered judgment as stated in the early part of
this decision.

Defendant took the case on appeal to the Court of Appeals but later
it was certified to this Court on the ground that the question involved
is purely one of law.

The only issue involved in this appeal is whether the surrender of
the warehouse receipt covering the 2,000, cavanes of palay given as a
security, endorsed in blank, to appellee, has the effect of
transferring their title or ownership to said appellee, or it should be
considered merely as a guarantee to secure the payment of the
obligation of appellant.

In upholding the view of appellee, the lower court said: “The
surrendering of warehouse receipt No. S-1719 covering the 2,000 cavanes
of palay by the defendant in favor of the plaintiff was not that of a
final transfer of that warehouse receipt but merely as a guaranty to
the fulfillment of the original obligation of P3,000.00. In other word,
plaintiff corporation had no right to dispose (of) the warehouse
receipt until after the maturity of the promissory note Exhibit A.
Moreover, the 2,000 cavanes of palay were not in the first place in the
actual possession of plaintiff corporation, although symbolically
speaking the delivery of the warehouse receipt was actually done to the
bank.”

We hold this finding to be correct not only because it is in line
with the nature of a contract of pledge as defined by law (Articles
1857, 1858 & 1863, Old Civil Code), but is supported by the
stipulations embodied in the contract signed by appellant when he
secured the loan from the appellee. There is no question that the 2,000
cavanes of palay covered by the warehouse receipt were given to
appellee only as a guarantee to secure the fulfillment by appellant of
his obligation. This clearly appears in the contract Exhibit A wherein
it is expressly stated that said 2,000 cavanes of palay were given as a
collateral security. The delivery of said palay being merely by way of
security, it follows that by the very nature of the transaction its
ownership remains with the pledgor subject only to foreclosure in case
of non-fulfillment of the obligation. By this we mean that if the
obligation is not paid upon maturity the most that the pledgee can do
is to sell the property and apply the proceeds to the payment of the
obligation and to return the balance, if any, to the pledgor (Article
1872, Old Civil Code). This is the essence of this contract, for,
according to law, a pledgee cannot become the owner of, nor appropriate
to himself, the thing given in pledge (Article 1859, Old Civil Code).
If by the contract of pledge the pledgor continues to be the owner of
the thing pledged during the pendency of the obligation, it stands to
reason that in case of loss of the property, the loss should be borne
by the pledgor. The fact that the warehouse receipt covering the palay
was delivered, endorsed in blank, to the bank does not alter the
situation, the purpose of such endorsement being merely to transfer the
juridical possession of the property to the pledgee and to forestall
any possible disposition thereof on the part of the pledgor. This is
true notwithstanding the provisions to the contrary of the Warehouse
Receipt Law.

In a case recently decided by this Court (Martinez vs. Philippine
National Bank, 93 Phil., 765) which involves a similar transaction,
this Court held:

“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.”

Wherefore, the decision appealed from is affirmed, with costs against appellant.

Bengzon, Padilla, Montemayor, Jugo, Reyes, and Labrador, JJ., concur.