PHILIPPINE TRUST COMPANY, AS ASSIGNEE OF SALVADOR HERMANOS, INSOLVENT, PLAINTIFF AND APPELLANT, VS. PHILIPPINE NATIONAL BANK, DEFENDANT AND APPELLEE.

The plaintiff and defendant are corporations
organized under the laws of the Philippine Islands and domiciled in the
city of Manila.

Salvador Hermanos was a copartnership and during the month of
January, 1919, executed to the defendant eight promissory notes
aggregating P156,000, payable on demand, and each secured by a quedan,
or warehouse receipt, issued by the firm of Nieva, Ruiz & Company.
Each note recites that it is payable on demand after date, for value
received, and that the firm has deposited “with the said bank as
collateral security for the payment of this note, or any note given in
extension or renewal thereof, as well as for the payment of any other
liability or liabilities of the undersigned to the said bank, due or to
become due, whether now existing or hereafter arising, the following
property owned by the undersigned.” The note then specifies the number
of the quedan and the amount of copra in piculs, and states that the
quedan was issued by Nieva, Ruiz & Company. The note for P8,000,
dated January 18, 1919, was secured by warehouse receipt No. 30; for
P20,000, dated January 22, 1919, was secured by receipt No. 35; for
P20,000, dated January 24, 1919, was secured by receipt No. 38; for
P20,000, dated January 27, 1919, was secured by receipt No. 41; for
P14,000, dated January 28, 1919, was secured by receipt No. 42; for
P18,000, dated January 21, 1919, was secured by receipt No. 33; for
P18,000, dated January 23, 1919, was secured by receipt No. 36; and for
P18,000, dated January 25, 1919, was secured by receipt No. 39, making
a total of 16,051.10 piculs of copra, covered by the warehouse receipts
of the firm of Nieva, Ruiz & Company issued to the firm of Salvador
Hermanos, and by that firm pledged as collateral to the defendant to
secure the payment of the eight above-described notes. Each of them
further recites that “on the nonperformance of this promise, or upon
the non-payment of any of the liabilities above-mentioned, or upon the
failure of the undersigned forthwith, with or without notice, to
furnish satisfactory additional securities in case of decline, as
aforesaid, then and in either such case, this note and all liabilities
of the undersigned, or any of them, shall forthwith become due and
payable, without demand or notice, and full power and authority are
hereby given to said bank to sell, assign, transfer and deliver the
whole of the said securities, or any part thereof, or any
substitutes therefor or any additions thereto, or any other securities
or property given unto or left in the possession of or hereafter given
unto or left in the possession of the said bank by the undersigned for
safe keeping or otherwise, at any brokers’ board or at public or
private sale, at the option of said bank or of its president or
secretary, without either demand, advertisement or notice of any kind,
which are hereby expressly waived. At any such sale, the said bank may
itself purchase the whole or any part of the property sold, free from
any right of redemption on the part of the undersigned, which is hereby
waived and released.” Stamped in red ink across the face of each quedan
are the words “Negotiable Warrant,” and each of them was in the usual
form of warehouse receipts.

On February 10, 1919, the firm of Salvador Hermanos withdrew from
the defendant bank, by and with its consent, warehouse receipts Nos.
33, 36, and 39 above described, which the bank was holding as
collateral security for each of theithree 18,000-peso notes amounting
to P54,000. The total amount of copra evidenced by the receipts
withdrawn was 6,024.55 piculs, the declared value of which, shown on
the face of such receipts, was P90,368.25. At the time of the
withdrawal, the firm executed the following writing:

“We received from the Philippine National Bank the warehouse
receipts issued by Messrs. Nieva, Ruiz & Company, the contents of
which are as follows:

No.	Date.		Sacks.	Piculs.	Declared value.
33	January 21/19…………………………………………		2,325	2,040.55	P30,608.25
36	January 23/19…………………………………………		2,175	1,992.00	29,880.00
39	January 25/19…………………………………………		2,335	1,992.00	29,880.00
			__________	__________	__________
		Total…………………………………………	6,835	6,024.55	90,368.25

“We promise to return to this bank the warehouse
receipts above cited on or before the 27th instant. These warehouse
receipts are guaranteed by the attached certificate of existence of the
effects of the 8th of February, 1919, issued by us.

“Manila, P. I., February 10, 1919.
	“SALVADOR HERMANOS.
	“Per (Sgd.)	G. SALVADOR.”

to which was attached this writing:

“MANILA, P. I., February 8, 1919.

“We hereby certify that there exist the following articles in our bodegas as follows:

“Soler Bodega.

100 tons kapok @ 200.00…………………………..	P20,000.00
100 piculs hemp @ 60.00……………………………	6,000.00
20,000 sacks (empty) @ 0.30………………………	6,000.00
1 lot gum copal…………………………………………..	1,900.00
1 lot gum elemi…………………………………………..	1,700.00
500,000 rattan @ 12.00……………………………..	6,000.00
Aceites y grasas…………………………………………	800.00
9,000 sacks common salt @ 2.00………………….	18,000.00
	_________
	60,400.00

“Wise & Co.—Gagalangin Bodega.

905 cas. Gs. in case @ 12.75……P11,538.75
77 cas. Gs. in drums
	54 gals. 64.80………… 4,989.60
		___________	16,528.35
			___________
			P76,928.35
			==========

and promise that none of the above, articles would be removed without consulting first, with the Philippine National Bank.

	“SALVADOR HERMANOS.
	“Per (Sgd.)	G. SALVADOR.”

Neither writing was in any manner authenticated by a notary or by a
competent public official. The writing of February 10 is in form a
receipt from the firm of Salvador Hermanos to the Philippine National
Bank of the quedans, or warehouse receipts, for the copra therein
described. The one of February 8 is, in legal effect, the certificate
of Salvador Hermanos “that there exist the following articles in our
bodegas as follows:” (Here follows the described property.) That is to
say, that the firm certifies that the property described is in the
warehouse of the firm.

Act No. 1956 of the Philippine Legislature provides for the
suspension of payments, the relief of insolvent debtors, the protection
of creditors, and the punishment of fraudulent debtors. The Act
provides:

“SECTION 1. This Act shall be known and may be
cited as The Insolvency Law, and in accordance with its provisions
every insolvent debtor may be permitted to suspend payments or be
discharged from his debts and liabilities.” Section 2 provides that
debtor who possesses sufficient property to cover the debts, be it an
individual, firm or corporation, and who is unable to meet them at
maturity, “may petition that he be declared in the state of suspension
of payments by the court, or the judge thereof in vacation.”

Section 3 enacts that upon the filing of the petition, the court
shall make an order calling a meeting of creditors specifying the time
and place; that notice thereof shall be published in a newspaper, and
that “said order shall further contain an absolute injunction
forbidding the petitioning debtor from disposing in any manner of his
property, except in so far as concerns the ordinary operations of
commerce or of industry in which the petitioner is engaged, and,
furthermore, from making any payments outside of the necessary or
legitimate expenses of his business or industry, so long as the
proceedings relative to the suspension of payments are pending, and
said proceedings for the purposes of this Act shall be considered to
have been instituted from the date of the filing of the petition.”

Section 14, chapter 3, provides that any person owing debts
exceeding P1,000 may apply to be discharged from his debts and
liabilities by petition to the Court of First Instance in which he has
resided for six months preceding the filing of the petition.

Section 18 enacts that upon receiving and filing of the petition,
schedule, and inventory, the court, or the judge, shall make an order
declaring the petitioner insolvent, and “shall further forbid the
payment to the debtor of any debts due to him and the delivery to the
debtor, or to any person for him, of any property belonging to him, and
the transfer of any property by him, and shall further appoint a time
and place for a meeting of the creditors to choose an assignee of the
estate.”

On April 21, 1919, Salvador Hermanos filed a petition of insolvency
in the Court of First Instance of the city of Manila. Article 5 of the
petition recites:

“That the following property and merchandise are
being pledged in favor of the Philippine National Bank, as shown by a
written document, on account of its credit which amounts to
P175,563.19, which are described as follows:

81,904 kilos kapok @ 0.20 ko……………………			P16,380.80
521,600 pieces rattan split 11.00 m……………..			5,737.60
93.94 piculs almaciga value………………………..			2,300.00
80 drums Union gasoline {	@ 53 gls. each	.}……	6,415.20
	@ 1.485 gal
100 cases gasoline 14.00 cs…………………………..			1,400.00
8 drums gasoline @ 54 gals. ea. 1.485 gl………….			641.52
10,000 piculs copra p. picul 14.50………………….			145,000.00
35 bales cardboard value…………………………….			1,451.52
			___________
			P179,326.64″

The testimony is undisputed and conclusive that about May 3, 1919,
Gregorio Salvador, a member of the firm of Salvador Hermanos, delivered
certain goods, wares, and merchandise to and in the warehouse of Nieva,
Ruiz & Company, and requested that firm to issue its receipt
therefor to and in favor of the Philippine National Bank, and that,
pursuant to such request, that firm did issue eight quedans to the bank
as follows:

No. 161 for 32 bales of hemp;
No. 162 for 953 bundles of rattan;
No. 165 for 72 bundles of empty sacks;
No. 167 for 136 sacks of gum;
No. 168 for 1,461 bales of kapok;
No. 175 for 288 packages of Talcum Powder ;
No. 176 for 35 packages of cardboard; and
No. 185 for 134 bundles of empty sacks.

On and between May 6, 1919 and August 7, 1919, acting under the
terms and provisions of its respective notes, the defendant bank sold
all of the personal property for which it held warehouse receipts, or
which had been surrendered to it by the Hermanos firm, save and except
the property described in the three warehouse receipts, which were
released and surrendered to that firm on February 10, 1919.

Based upon its insolvency petition, and in the ordinary course of
business, the firm of Salvador Hermanos was adjudged insolvent, and on
July 19, 1919, the Philippine Trust Company was elected assignee of
said firm and duly qualified. September 13, 1919, as such assignee, it
made a demand upon the bank for the surrender and delivery of the
property described in all of the above receipts, an& upon the
bank’s refusal, commenced this action to recover its value alleged to
be P242,579.61, claiming that on April 21, 1919, the firm of Salvador
Hermanos was the sole and exclusive owner of the property, and that, as
to the copra, about June 28, 1919, and after the filing of the
insolvency petition, the bank unlawfully seized and converted the copra
to its own use, the value of which was P192,260. For a second cause of
action, the plaintiff alleges that, as such assignee, it was the owner
of the remaining personal property, and that, after the insolvency
petition was filed, the defendant unlawfully seized and converted such
property to its own use, and that it was of the value of P50,319.61.

For answer, the bank makes a general denial, as to each cause of
action, of all of the material allegations of the complaint. This
presents the question as to who is the owner and entitled to possession
of the property. There is but little, if any, dispute as to the facts.

It is conceded that in January, 1919, the firm of Salvador Hermanos
executed to the Philippine National Bank the eight promissory notes
above described, and that each note was secured by the quedan, or
warehouse receipt, of Nieva, Ruiz & Company, issued to the firm of
Salvador Hermanos for so many piculs of copra. That the notes are of
the same form, the only difference being the date and the amount of the
note, and the number of the quedan, or warehouse receipt, and the
amount of copra in piculs. Each warehouse receipt was duly numbered,
dated and signed by Nieva, Ruiz & Company, and recites “received
from Salvador Hermanos the following packages of copra as specified
below, which are stored in warehouse No. 2, situated
at…………………………………….., subject to the terms
and conditions stated on the face and back hereof, to be delivered unto
Salvador Hermanos, or order,” giving the number of the warehouse where
located, and the number of sacks., gross weight and the declared value;
across the face of each receipt is stamped in red ink the words
“Negotiable Warrant.” Among the conditions printed on the back of the
receipt is paragraph 4, as follows:

“4. This Company will deliver the packages noted
hereon, on surrender to the Company of this warrant endorsed by the
party who shall be for the time registered in the books of the Company
as the owner of the packages described hereon; and the production by
the Company of this warrant shall at all times be conclusive proof that
the packages hereon noted have been properly delivered by the Company
and shall exempt the Company from all responsibility in connection with
the said packages or goods.” Also the following:

“Delivery
is hereby authorized unto………………………………,”
opposite which some of the receipts were signed by the firm of Salvador
Hermanos, and others were not signed by any one.

The fact remains that at the time the eight promissory notes were
executed, a given quedan, or warehouse receipt, was described and
incorporated in the note as to its number, when and by whom issued, and
the property it represented, and each receipt was then delivered by the
firm to the defendant bank, all of which was during the month of
January, 1919. The bank never had the manual possession or the physical
control of any of this property until after the insolvency petition was
filed, and it is for such reason that the plaintiff claims that it was
the property of the firm, and that the defendant should account to the
assignee.

Each quedan, or warehouse receipt, was specifically described in a
given note, and was made a part of it, and the note recites that, for
any breach of its terms or conditions, the bank has full power and
authority “to sell, assign, transfer and deliver the whole of the said
security, or any part thereof, etc.,” and that “at any such sale, the
said bank may itself purchase the whole or any part of the property
sold, free from any right of redemption on the part of the undersigned,
which is hereby waived and released.”

In addition, the quedan itself was delivered to and held by the
bank, an$ the warehouseman recognized the bank as the owner of the
property. Legally speaking, the owner of the quedans, or warehouse
receipts, was the owner of the property described in them, and the
quedans were given as collateral to secure promissory notes, which, for
value received, were executed to the bank.

The execution of the notes, the physical possession of the
negotiable quedan, or warehouse receipt, and the recognition of
ownership by the warehouseman, legally carries with it both the title
to, and the possession of, the property. In such a case, title is not
founded on a public instrument which should be authenticated by a
notary or by a competent public official. Legally speaking, the
execution of the promissory notes and the pledging of the quedans, or
warehouse receipts, as collateral, and the describing of them in the
notes, and the manual delivery of the quedan, or warehouse receipt
itself, carries with it not only the title, but the legal possession of
the property. In other words, as to the property described in the
quedans, or warehouse receipts, which were pledged, as collateral, in
January, 1919, to secure the eight respective promissory notes, both
the title and the possession of that property were delivered to and
vested in the defendant bank in January, 1919. Three of those quedans,
or warehouse receipts, were returned to the firm by the bank on
February 10, 1919, but the bank still owned and held the notes, which
were secured by those warehouse receipts, and no part of the debt
itself was paid by or through the surrender of the receipts. For such
reason, as to the first cause of action, the plaintiff cannot recover,
and, as to it, the judgment of the lower court should be affirmed.

The second cause of action presents another and different question.

February 10, 1919, for some unexplained reason, the bank
surrendered and returned to Salvador Hermanos the three quedans, or
warehouse receipts, Nos. 33, 36, and 39, which the firm had pledged to
it as collateral on January 21, 23, and 25, 1919, to secure the payment
of the three notes of P18,000 each, executed on those respective dates.
In its receipt for them, the firm promised to return the quedans to the
bank “on or before the 27th instant/’ meaning January 27, 1919, and it
was therein stated that such warehouse receipts “are guaranteed by the
attached certificate of existence of the effects of the 8th of
February, 1919, issued by us.” The legal effect of this receipt is a
promise on the part of the firm to return the three quedans on or
before January 27, 1919, and a statement that such receipts are
guaranteed by the attached certificate of the existence in the
warehouse of the property described in the certificate. The statement
of February 8, recites “we hereby certify that there exist the
following articles in our bodegas.” Then follows a description of the
property. This is nothing but a statement or representation to the
effect that the firm has the property in its warehouse. Nothing more.
After describing the property, the certificate then says: “And promise
that none of the above articles would be removed without consulting
first with the Philippine National Bank.” There is no statement or
representation of any kind showing when or from whom the property was
received, or how it was held, or who was the owner, or when or to whom
it would be delivered. When analyzed, this writing is nothing more than
a certificate of the firm that the described property was then in its
warehouse, and a promise that none of the “articles Would be removed
without consulting first with the Philippine National Bank.” Such a
writing would not transfer the title of the property to the bank, or
give it possession, either actual or constructive. It will be noted
that both the receipt of February 10 and the certificate and promise of
February 8, are signed by the firm of Salvador Hermanos, and that the
certificate says that the property was then in the firm’s warehouse,
and that neither instrument was in any manner authenticated by a notary
or a competent public official, as provided by article 1216 of the
Civil Code, and that the property was in the warehouse of the firm.

Article 1863 of the Civil Code provides:

“In addition to the requisites mentioned in article
1857, it shall be necessary, in order to constitute the contract of
pledge, that the pledge be placed in the possession of the creditor or
of a third person appointed by common consent.”

But here, it appears from the certificate that the property was
then in the possession of the firm, who made the certificate, and that
it was in the possession of that firm when its insolvency petition was
filed on April 21, 1919. It further appears that on May 3, 1919,
Gregorio Salvador, a member of the firm, appeared at the offices of
Nieva, Ruiz & Company, and requested that firm to issue its
warehouse receipts to the Philippine National Bank for certain goods,
which on that date he placed in the warehouse of that company, and, in
accord with his request, Nieva, Ruiz & Company did issue to and in
favor of the Philippine National Bank the following quedans, or
warehouse receipts:

No. 161 for 32 bales of hemp, in warehouse No. 2, of the declared value of P880;

No. 162 for 953 bundles of rattan, in warehouse No. 2, of the declared value of P3,700.40;

No. 165 for empty sacks, in warehouse No. 2, of the declared value of P450;

No. 167 for 136 sacks of almaciga, in warehouse No. 1, of the declared value of P2,300;

No. 168 for 1,461 bales of kapok, in warehouse No. 1, of the declared value of P14,571.48;

No. 175 for 288 packages of talcum powder, in warehouse No. 5, of the declared value of P15,582.26;

No. 176 for 35 packages of cartulina, in warehouse No. 5, of the declared value of P2,588.48; and

No. 185 for 134 bundles of empty sacks, in warehouse No. 2, of the
declared value of P670, making a total declared value of the property
evidenced by such receipts of P40,742.62.

In the second cause of action, the complaint alleges that the
defendant took and converted 88 drums of gasoline and 100 cases of
gasoline; none of which is included in the above receipts. Otherwise
the property described in quedans Nos. 161 to 185, inclusive,
correspond and are identical with the property described in the second
cause of action.

The bank founds its right to claim the property described in the
quedans Nos. 161 to 185, inclusive, upon the firm’s certificate of
February 8, 1919, above quoted. By comparison, it will be found that
the property described in such quedans, or warehouse receipts, does not
correspond with the property described in the firm’s certificate of
February 8. In the certificate of February 8, there are aceites y
grasas, or oil and grease, valued at P800, and 9,000 sacks of common
salt valued at P18,000 in the bodegas of the firm, and 905 cases of
gasoline valued at P11,538.75, and 77 cases of gasoline in drums, 54
gallons, valued at P4,989.60, in the warehouse of Wise & Company,
that are not described in the quedans Nos. 161 to 185, inclusive. It
also appears that Talcum Powder in receipt No. 175 of the value of
P17,140, and cartulina in receipt No. 176 of the value of
P2,847 are not included in the property described in the certificate of
February 8, making a total value of the property described in those two
receipts, and which is not included in the certificate of February 8,
of P19,987.

There is not any evidence of the actual market value of the
property, but it does appear that at the time quedans Nos. 161 to 185,
inclusive, were issued, the bank itself placed a declared value upon
that property of P40,742.62. Those quedans do not include the gasoline
which the bank admits it sold on May 24, 1919, for P4,989.60, and the
gasoline which it sold on May 28, 1919, for the sum of P2,641.80, or
P7,631.40 which it received for gasoline. It is true that it appears
from the sales report that the bank sold the property described in
quedans Nos. 161 to 185, inclusive, for much less money than the
valuation which it placed upon the property, but, in legal effect, when
the quedans were issued, the conversion of that property took place at
the time they were issued to and accepted by the bank, and it should be
charged with the value of the property at the time of its conversion,
and in the absence of any testimony as to the market value, it should
be charged with the amount which it actually received from the sale of
the gasoline.

It will be noted that the promissory notes executed by the firm to the bank recite:

“Full power and authority are hereby given to said
bank to sell, assign, transfer and deliver the whole of the said
securities, or any part thereof, or any substitutes therefor or any
additions thereto, or any other securities or property given unto or
left in the possession of or hereafter given unto or left in the
possession of the said Bank by the undersigned.”

Hence, the power and authority of the bank to sell, assign, or
transfer is confined to property which was given unto or left in its
possession.

As we have pointed out none of the property described in the
certificate of February 8 was ever given unto or left in the possession
of the bank.

The insolvency petition was filed April 21, 1919, and the plaintiff
was duly elected and qualified, as assignee, on July 19, 1919, and, as
such, it represents both the creditors and the firm. Although it was
not appointed until July, 1919, yet when it did qualify its right and
title to all the property of the firm related back and became vested as
of April 21, 1919, when the insolvency petition was filed, and from
that time it alone had the power and authority to act for and represent
the firm. Under the terms and provisions of Act No. 1956 of the
Philippine Legislature, after it was filed, the power of the firm or
any member of it to deliver possession of the property to secure a
preexisting debt was suspended pending final adjudication. That is to
say, if the debt was not legally secured before the insolvency petition
was filed, no member of the firm had any legal right to secure it after
the petition was filed, and any attempt to do so would be null and void.

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. That is to say, the bank had a legal right to
apply the proceeds from the property described in the five remaining
quedans to the payment of its eight promissory notes.

As to the second cause of action, the judgment of the lower court
is reversed, and one will be entered here in favor of the Philippine
Trust Company, the plaintiff, and against the Philippine National Bank,
the defendant, for P40,742.62, the declared value of the property
described in quedans Nos. 161 to 185, inclusive, and for the further
sum of P7,631.40, the value of the gasoline sold in May, 1919, or a
total of P48,374.02, with interest thereon from September 22, 1919, at
the rate of 6 per cent per annum, and for the costs and disbursements
in this and the lower court. So ordered.

Araullo, C. J., Johnson, Street, Malcolm, Avancena, Villamor, and Romualdez, JJ., concur.