WARNER, BARNES & CO., LTD., PLAINTIFFS AND APPELLEES, VS. RAMON FLORES, DEFENDANT AND APPELLANT.

Defendant-appellant Ramon Mores, in November, 1940, purchased from
plaintiffs-appellees Warner, Barnes & Co., Ltd., P3,027.90 worth of
fertilizer and agreed to pay it on or before December 31, 1941, with 7%
annual interest compounded quarterly. To guarantee the payment of the
obligation, including interest and expenses of drafting, notarization
and registration of the mortgage, the defendant mortgaged to the
plaintiff 951 piculs of sugar of the crop year 1941-42. When the
mortgaged crops were milled by the Ma-ao Sugar Central in 1941-42, the
defendant’s rented haciendas produced a total of 1,954.02 piculs of
sugar of which 47 % was his share or 918.39 piculs. Out of defendant’s
share of 918.39 piculs, the plaintiffs received from the sugar central
“quedans” for 278 piculs. Neither the plaintiff nor the defendant was
able to sell the said 278 piculs or the remaining 640.39 piculs that
had no “quedans”, because at that time there were no sugar buyers due
to lack of shipping facilities and to the eventual involvement of the
Philippines in World War II. All the defendant’s sugar and other sugar
stored in the warehouse of the Ma-ao Sugar Central were burned, lost,
destroyed or looted during the Japanese occupation of the province of
Negros Occidental. Because the mortgaged sugar was not sold, the
indebtedness of the defendant to the plaintiffs had a debit balance of
P3,098.72 on April 30, 1942, three weeks before the Japanese occupied
said province. On February 28, 1954, the fertilizer account of the
defendant with the plaintiffs, had a debit balance of P5,223.41, to
which interest should be added at the rate of P0.679.18 per day from
March 1, 1954. Annex A of the complaint is the chattel mortgage
involved.

On April 3, 1954, the present complaint was filed.
The lower court rendered judgment on January 16, 1956. “condenando al
demandado a pagar a la demandante la cantidad de P5,223.41 con interes
al tipo del P0.67918 diarios computados desde el dia 1.° de Marzo de
1954 hasta su completo pago, mas un 20% sobre todo el importe de esta
sentencia en concepto de honorarios de abogado y gastos de cobranza.
Las costas se tasaran en contra el demandado”. On appeal to the Court
of Appeals, said Tribunal certified the case to Us for the questions
raised by defendant-appellant are purely legal in nature. In effect,
the appellant submits that the court a quo erred: (1) In
finding and declaring that defendant shall bear and suffer the loss of
the sugar in the warehouse of the Ma-ao Sugar Central; (2) In
sentencing and condemning the defendant to pay the plaintiffs the
amounts stated in the appealed judgment; and (3) In not declaring that
from the sugar produced from the defendant’s share, his monetary
obligation with the plaintiffs has been completely paid and settled.

Appellant claims that for all legal intents and purposes, the appellees
were already paid by him. He cited conditions Nos. 7, 8 and 10 of the
chattel mortgage, Annex A, to support his contention.

“7.
El Deudor Hipotecario por la presente autoriza y ordena a la Ma-ao
Central para que durante la molienda de la cosecha arriba mencionada,
despues que se haya convertido en azucar, retenga de la participacion
del mismo los 951 picos gravados con esta hipoteca, y remita
mensualmente a la Acreedora Hipotecaria en Iloilo, el quedan
correspondiente hasta que se hayan cubierto los 951 picos por la
presente hipotecados, extendiendose dicho quedan a nombre del Deudor
Hipotecario o a su orden pero, con una nota o memorandum en dicho
quedan al sentido de que el azucar representado por el mismo esta
hipotecado a Warner, Barnes & Co., Ltd. por el total de su valor.
Esta autorizacion es firme e irrevocable sin el consentimiento por
escrito de los Sres. Warner, Barnes & Co., Ltd.

8.
“Queda tambien estipulado que en caso de que el Deudor Hipotecario
dejare de pagar el importe del abono-garantizado por esta hipoteca
dentro del plazo fijado en el parrafo 2 de esta escritura, la Acreedora
Hipotecaria queda antorizada vender al azucar hipotecado en cualquier
tiempo que estime conveniente, por el precio corriente en el mercado;
reteniendo del producto de la venta el valor del abono arriba
mencionado, juntamente con sus intereses devengados asi como los gastos
ocasionados por la venta del referido azucar y entregando el sobrante,
si hubiera al Deudor Hipotecario. Para efectuar dicha venta el Deudor
Hipotecario, autoriza por al presente a Warner, Barnes &, Co.,
Ltd., para endosar y firmar los quedanes correspondientes en su nombre
y representacion ratificando desde ahora dicho acto como si el hubiere
ejecutado personalmente.

10. “Y, por ultimo, queda
asimismo convenido que en caso deque el Deudor Hipotecario no pudiera
moler sus plantaciones de cañadulce por falta de gastos o cualquier
otro motivo, la Acreedora Hipotecaria tendra derecho, a opcion suya, a
constituirse en la Hacienda * * * y tomar completa posesion de la misma
y de sus plantaciones de cañadulce, y de cuantos materiales, aperos de
molienda, carabaos y obreros de sean necesarios, y llevara a cabo los
trabajos de molienda, cargando a cuenta del Deudor Hipotecario todos
los gastos reales y necessarios en que incurra con relacion a dichos
trabajos incluyendo la labor, supervisiones, materiales y demas gastos
necesarios y justos. Todos los gastos que por estos conceptos
desembolsare la acreedora hipotecaria devengaran interes al tipo de . .
. .% annual, ademas de un 10% sobre el importe total de los gastos por
la supervision de dichos trabajos.”

In view
of the above conditions, the appellant argues, thus: That plaintiffs
have the first lien on and the sugar produced by the defendant which
lien on all the sugar produced by the defendant which lien has
preference over any and all other “gravamen” in the existing sugar of
the defendant; the defendant had no control or power to withdraw the
sugar from the Ma-ao Sugar Central; the plaintiff company had
irrevocable power to sell the sugar of the defendant; the said sugar or
net participation of the defendant including his properties, were under
the exclusive control of the plaintiffs; the defendant produced sugar
for the plaintiffs and this is all that matters; there is no condition
in Annex A that of the sugar which were lost or destroyed, the
defendant should bear the loss; and not having assumed the risk, the
defendant should not be responsible for those events which could not be
foreseen or which though foreseen were inevitable (Art. 1174, Civil
Code); the defendant, having performed his part of the obligation and
not being guilty of fraud, negligence or delay, is deemed to have
completely paid and settled his obligation (Arts. 1170 and 1262, Civil
Code), and the plaintiffs not having protested either to the defendant
or to the central on its inability to sell or dispose the sugar because
of the approaching war, the obligation is deemed duly complied with
(Art. 1235, Civil Code).

The fundamental error of the
defendant, however, may be- seen from the fact that he was the owner of
the sugar which was lost, at the time of the loss, hence the fitness of
the maxim: “Res Periit Domino Suo”. The plaintiffs were mere mortgagees
of defendant’s sugar. Clause 8, of the Chattel Mortgage, heretofore
quoted, did not transfer the ownership of the defendant’s sugar to the
plaintiffs. It merely authorized the plaintiffs to sell said sugar in
case the defendant failed to pay on the maturity date (December 31,
1941), and to retain from the proceeds of the sale the value of the
fertilizer bought, with the accrued interest and the expenses of the
sale, and any surplus remaining after the defendant’s obligation was
paid, should be turned over to defendant. If the plaintiffs were the
owner of the sugar, there would be no need for the defendant to
authorize the former to sell it and the defendant would not have any
right to the surplus over and above his debt. This particular issue is
no longer of first impression in this jurisdiction. In the case of
Martinez vs. Philippine National Bank, 93 Phil., 765 it was held:

“*
* *. It (bank) only accepts sugar as security for the payment of its
crop loans and later on pursuant to an understanding with the sugar
planter, 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 (Art. 1839,
old Civil Code; Art. 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.

*           *           *           *           *           *           *

“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.”

It is to be noted that the position of the herein plaintiffs is even
more advantageous than that of the bank, in the case just cited. In the
Martinez case, the mortgagor endorsed and delivered the
“quedans” representing all the mortgaged sugar to the mortgagee,
whereas in the present case, only a part of the “quedans” were
delivered to the mortgagees and they were not even endorsed at that. In
fact the “quedans” were issued in the name of the mortgagor (Flores),
or his order “pero con una nota o memorandum al sentido de que el
azucar representado por el mismo esta hipotecado a Warner, Barnes &
Co., Ltd. por el total de su valor”. Of course, the defendant contends
that the Martinez case is not applicable to the case at bar; we are
fully satisfied, however, that the principles of law announced therein,
govern the present case.

Judgment appealed from is affirmed. Costs against the defendant-appellant.

Bengzon, Acting C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, and Dizon, JJ., concur.