NEGO Week 12 Documents of Title, General Bonded Warehouse Act

1. PEOPLE V. VERZOLA GEORGINA 2. VDA DE LIMJOCO V. DIRECTOR OF COMMERCE ANGEL VIRGINIA I. VDA. DE LIMJOCO, Petitioner-Appellant, vs. THE DIRECTOR OF COMMERCE, RespondentAppellee. Emergency Recit: Virginia I. De Limjoco operates a rice mill commonly called "kiskisan" and is engaged in the business of milling palay belonging to customers for the purpose of removing its hull and converting it into rice. The facilities of the rice mill are open to the public in the sense that anybody who wants his palay to be milled and converted into rice may deliver the same to the rice mill paying P0.40 per cavan of palay for the services of the petitioner in milling it. The mill is within a building which the petitioner calls a "camalig". There were occasions when her customers brought more palay than could be milled in one day, whereupon they would leave the palay in the custody of Virginia, piled inside the "camalig" to await its turn to be milled. Virginia did not charge the customers for keeping the palay. Since the time the license expired, Virginia refused to renew such from the Bureau of Commerce claiming that her business does not fall within the provisions of Act 3893 as amended by Republic Act 247. The Director of Commerce ruled that Virginias rice milling business falls under Section 2 of the General Bonded Warehousing Act, required her to secure the corresponding renewal license and started steps for her prosecution in view of her refusal to do so. The move, it seems, was subsequently held in abeyance upon the filing of the petition herein. The trial court upheld the ruling of the Director of Commerce. Issue: Whether Virginias rice milling business falls under Section 2 of the General Bonded Warehousing Act, consequently requiring her to secure the corresponding renewal license. Yes

It is enough that the palay is delivered, even if only to have it milled. Delivery connotes transfer of physical possession or custody; and it may indeed be seriously doubted if the concept of "storage" under the law would cover a situation where one merely utilizes the services of the mill but keeps the palay under his physical control all steps of the way. The main intention of the lawmaker is to give protection to the owner of the commodity against possible abuses (and we might add negligence) of the person to whom the physical control of his properties is delivered." Whenever a rice mill engaged in the business of hulling palay for others, is housed in a "camarin", the keeping of palay or rice follows as a necessary consequence. This is true, even if the grains were received therein exclusively for milling purposes. Hence, one way or the other, there is a form of storage, the duration of which may vary, depending upon circumstances. In any event, the ricemill operator is responsible for the palay or rice, while the same is in his possession, and public policy or public interest demands that the rights of the owners of the commodity - which is our main staple - be duly protected.

Hence, the need of securing the license-- in order that the Director of Commerce could determine 1. the conditions under which the mill may be authorized to operate and 2. the amount of the bond to be required for the protection of the people who avail themselves of its services. MAKALINTAL, J.:

This case, filed as a petition for declaratory relief in the Court of First Instance of Manila, involves the interpretation of Section 2 of the General Bonded Warehousing Act (Act No. 3893 as amended by Republic Act No. 247), specifically in relation to the rice milling business of petitioner-appellant Vda. De Limjoco.

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Facts

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It appears that sometime prior to March 22, 1950, petitioner Virginia I. De Limjoco and her husband, the late Bonifacio T. Limjoco, were the owners of a rice mill commonly called "kiskisan" and were engaged in the business of milling palay belonging to their customers for the purpose of removing its hull and converting it into rice. On July 31, 1952 Bonifacio T. Limjoco died, leaving the milling business in the hands of his surviving spouse, Virginia. Virginia continued in the business, which prior to the death of her husband, was managed by the latter without, however, renewing the license which expired on December 31, 1950. Since then and up to the present, Virginia refused to secure a license from the Bureau of Commerce claiming that her business does not fall within the provisions of Act 3893 as amended by Republic Act 247. It appears that Virginia owns a rice mill of the semicono type. The facilities of the rice mill are open to the public in the sense that anybody who wants his palay to be milled and converted into rice may deliver the same to the rice mill paying P0.40 per cavan of palay for the services of the petitioner in milling it. The mill itself is within a building which the petitioner calls a "camalig" about ten meters long, eight meters wide and five meters high. The "camalig" is totally enclosed partly by steelmatting, partly by wood and partly by galvanized iron sheets. There were occasions when her customers brought more palay than could be milled in one day, whereupon they would leave the palay in the custody of Virginia, piled inside the "camalig" to await its turn to be milled. o Sometimes the palay left in her possession amounted to as much as 100 cavans, and at other times as little as 10 cavans o Virginia did not charge the customers for keeping the palay. The arrangement being, in accordance with the customs of the place, a favor done to the customers This arrangement also benefited Virginia because unless she acceded thereto the customers might take their palay for milling to her competitors. The Director of Commerce ruled that Virginias rice milling business falls under Section 2 of the General Bonded Warehousing Act, required her to secure the corresponding renewal license and started steps for her prosecution in view of her refusal to do so. The move, it seems, was subsequently held in abeyance upon the filing of the petition herein. The trial court upheld the Director of Commerce and ruled that the law in question is applicable in this case. Issue: Whether Virginias rice milling business falls under Section 2 of the General Bonded Warehousing Act, consequently requiring her to secure the corresponding renewal license Held: Yes. Decision appealed from affirmed. Ratio Section 2 of the General Bonded Warehousing Act provides:

As used in this Act, the term "Warehouse" shall be deemed to mean every building, structure, or other protected inclosure in which rice is kept for storage. The term "rice" shall be deemed to mean either palay, in bundles, or in grains, or clean rice, or both. "Person" includes a corporation or partnership or two or more persons having a joint or common interest; "warehouseman" means a person engaged in the business of receiving rice for storage; and "receipt" means any receipt issued by a warehouseman for rice delivered to him. For the purpose of this Act, the business of receiving rice for storage shall include o (1) any contract or transaction wherein the warehouseman is obligated to return the very same rice delivered to him or pay its value; o (2) any contract or transaction wherein the rice delivered is to be milled for and on account of the owner thereof;

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(3) any contract or transaction wherein the rice delivered is commingled with rice delivered by or belonging to other persons, and the warehouseman is obligated to return rice of the same kind or pay its value.

1. Virginia submits that the test to determine the applicability of Act No. 3893 as amended is whether or
not she is engaged in the business of receiving palay for storage; that the clause in section 2 thereof which refers to "any contract or transaction wherein the rice, delivered is to be milled for and on account of the owners" must be understood in relation to the subject matter of the statute as expressed in its title, namely, "An Act to Regulate the Business of Receiving Commodity for Storage"; and that since her business is the milling of palay, the delivery thereof to her is merely incidental to such business and does not constitute storage within the meaning of the statute.

Section 2, however, is too clear to permit of any exercise in construction or semantics. It does not stop at the bare use of the word "storage," but expressly provides that any contract or transaction wherein the palay delivered is to be milled for and on account of the owner shall be deemed included in the business of receiving rice for storage for the purpose of the Act. In other words, it is enough that the palay is delivered, even if only to have it milled. Delivery connotes transfer of physical possession or custody; and it may indeed be seriously doubted if the concept of "storage" under the law would cover a situation where one merely utilizes the services of the mill but keeps the palay under his physical control all steps of the way. But in this case it is a fact that palay is delivered to appellant and sometimes piled inside her "camalig" in appreciable quantities, to wait for its turn in the milling process. This is precisely the situation covered by the statute. We agree with the trial Judge, when he said: "There is a reason for the inclusion of the business of the petitioner within the operation of Act 3893 as amended by Republic Act 247. The main intention of the lawmaker is to give protection to the owner of the commodity against possible abuses (and we might add negligence) of the person to whom the physical control of his properties is delivered." People vs. Versola o At any rate, whenever a rice mill engaged in the business of hulling palay for others, is housed in a "camarin" like that of appellant herein, the keeping of palay or rice therein follows as a necessary consequence. This is true, even if the grains were received therein exclusively for milling purposes. Hence, one way or the other, there is a form of storage, the duration of which may vary, depending upon circumstances. In any event, the ricemill operator is responsible for the palay or rice, while the same is in his possession, and public policy or public interest demands that the rights of the owners of the commodity - which is our main staple - be duly protected. Hence, the need of securing the license prescribed in Act No. 3893, in order that the Director of Commerce could determine the conditions under which the mill may be authorized to operate, conformably with the objectives of said legislation, and the amount of the bond to be required for the protection of the people who avail themselves of its services. constitutional mandate that no law shall embrace more than one subject which shall be expressed in the title thereof. o We believe the subject matter of said Act as expressed in its title, namely, the regulation of the business of receiving commodity for storage, is sufficiently broad to cover the business of milling palay where the palay is delivered to the mill operator and kept in a construction which serves the purpose of a warehouse, as in this case.

2. Virginia also contends that the inclusion of the business of milling palay in Act No. 3893 infringes the

3. Virginia says her "camalig" is neither adequate nor suitable for storage. o But the inadequacy of the construction insofar as the safety of the palay is concerned is not a
valid reason to remove it from the operation of the statute, for otherwise the very fact of noncompliance with the legal requirements in this respect would be its own excuse from the liabilities imposed. 3. PHIL TOBACCO V. PABOL KARL

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Philippine Tobacco v Rizalino Pablo, Director of Commerce ER: - Phil Tobacco and ACCFA entered into a memorandum agreement wherein the former agreed to redry, pack and keep in storage all Virginia leaf tobacco delivered by the latter To guarantee the faithful performance of the agreement and to answer for any damage that may be suffered by ACCFA, Phil Tobacco agreed to file a bond which may be increased under given circumstances The DOC required Phil Tobacco an additional bond based on the provision of the General Bonded Warehouse Act Phil Tobacco filed a petition for prohibition with a writ of preliminary injunction against the DOC WoN Phil Tobacco should file the bond The main intention of the lawmaker, in requiring the millers to post the necessary bond, is to give protection to the owner of the commodity against possible abuses (and we might add negligence) of the person to whom the physical control of his properties is delivered. ACCFAs tobacco is insured with the GSIS. In addition, the agreement between Phil Tobacco and ACCFA already required the former to post a performance bond It is evident that the ACCFA is amply protected. It would be unreasonable and oppressive to compel Phil Tobacco to further put up a bond and subject it to unnecessary burden of the premium incident to such bond

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FACTS: - 02/02/1959: The Philippine Tobacco Flue Curing and Redrying Corporation (Phil Tobacco) and the Agricultural Credit and Cooperative Financing Administration (ACCFA), by a memorandum agreement, agreed that Phil Tobacco "shall redry, pack and keep in storage all Virginia leaf tobacco delivered by ACCFA to the Phil Tobaccos redrying and repacking plant, the same to be done according to standard procedure and usages of the trade, including fumigation of stored tobacco to prevent damage by pests." o o ACCFA, in turn, agreed to pay the Phil Tobacco P0.18 per kilo for the redrying and packing of the tobacco and a monthly warehousing fee of P2.20 per hogshead. To guarantee the faithful performance of the agreement, and to answer for any damage that may be suffered by ACCFA while the tobacco is in the plant or warehouse of the corporation, Phil Tobacco agreed to file a bond in the amount of P200,000.00, which amount "may be increased at the option of the ACCFA as the amount and value of the tobacco delivered to the plant or warehouse of the corporation increases. This agreement shall be in effect for a period of 3 years counting from 03/01/1959, and extendible from year to year thereafter, upon mutual agreement of the parties.

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02/26/1960: the Director of Commerce (DOC), through the Bureaus Chief Commission Agent, required Phil Tobacco to file an additional bond of P11,033,334, later on increased to P12,366,667.22, pursuant to the General Bonded Warehouse Act (Warehouse Act). o Upon investigation, Phil Tobacco had allegedly received for storage 50,000 hogsheads of Virginia tobacco valued at P40,000,000 and their records show that Phil Tobacco is only authorized to receive for storage at any one time not more than 4,000 hogsheads of tobacco equivalent to P2,300,000

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03/12/1960: Phil Tobacco informed the DOC that the former was not engaged in warehousing and storage and therefore not subject to the provisions of the Warehouse Act. o o This was rejected by the DOC hence Phil Tobacco appealed to the Secretary of Commerce and Industry (SCI). 05/12/1960: SCI rejected Phil Tobaccos appeal and enjoining it to file the bond required by the DOC.

05/19/1960: Phil Tobacco and ACCFA entered into a new memorandum agreement o ACCFA agreed to deliver 75% of the tobacco to the premises of Phil Tobacco, for the latter to perform all the services required for the curing and the treatment of the tobacco until they are ready for the manufacture of cigarettes at a fee of P2.20 per hogshead. As security for performance, Phil Tobacco shall post a surety bond of P700,000 in favor of ACCFA. The old memorandum agreement (02/02/1959) was declared extinguished and superseded by the new memorandum agreement.

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06/01/1960: Phil Tobacco received a letter from the DOC requiring them to file an additional bond of P24,905,579.63 within 2 days from the receipt thereof. o Phil Tobacco filed with the CFI of Manila a petition for prohibition with a writ of preliminary injunction against the DOC, claiming that the DOC acted with grave abuse of discretion and disregard of the law and his jurisdiction. CFI judgement: Phil Tobacco was not engaged in the business of warehousing within the meaning of the Warehouse Law as far as the ACCFAA tobacco is concerned and should not be obliged to file the bond; declared the order of the DOC requiring Phil Tobacco to file a bond null and void; making the writ of preliminary injunction permanent

ISSUE: WoN Phil Tobacco should post an additional bond, as required by the DOC, pursuant to the provisions of Secs. 4 and 5 of Act No. 3893, as amended, otherwise known as the General Bonded Warehouse Act. RATIO: - Phil Tobacco claims that the contract with ACCFA is one of services and therefore not within the purview of the Warehouse Act. The DOC maintains that Phil Tobacco is a warehouseman and should comply with the provisions of the General Warehouse Act by putting up the additional bond. Sec 4 of the Warehouse Act: "bond shall be so conditioned as to respond for the market value of the rice actually delivered and received at any time the warehouseman is unable to return the rice or to pay its value." o The main intention of the lawmaker, in requiring the millers to post the necessary bond, "is to give protection to the owner of the commodity against possible abuses (and we might add negligence) of the person to whom the physical control of his properties is delivered.

In the case at bar, ACCFA had insured its tobacco with the GSIS and Phil Tobacco had been required by ACCFA to file a performance bond, which may be increased at the option of ACCFA as the amount and value of tobacco delivered to the plant or warehouse of Phil Tobacco increases, conditioned upon

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the performance of the agreement and to answer for any damage suffered by ACCFA while the tobacco was in the plant or warehouse of Phil Tobacco. o It is evident that the ACCFA is amply protected. It would be unreasonable and oppressive to compel Phil Tobacco to further put up a bond and subject it to unnecessary burden of the premium incident to such bond.

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The ACCFA is now defunct and its functions have been taken over by the Agricultural Credit Administration. o o o This controversy involves the keeping of tobacco, harvested in 1959, for curing and ageing by Phil Tobacco, which was contracted more than 15 years ago. Witnesses testified that the ageing process takes from 18 to 24 months before the tobacco is sold to the cigarette manufacturers. The commodity kept in the premises of Phil Tobacco for curing and ageing have already been withdrawn and disposed of by the ACCFA, in which case the filing of an additional bond by Phil Tobacco ceases to be controversial.

UPON THE FOREGOING, the appeal should be, as it is hereby, DISMISSED, without costs. 4. BOG & CO V. HANOVER FIRE INSURANCE - GASTON LEE BOG & COMPANY, plaintiff-appellee, vs. THE HANOVER FIRE INSURANCE COMPANY OF THE CITY OF NEW YORK, ET AL., defendants-appellants. REPUBLIC OF THE PHILIPPINES, ET AL. , intervenorsappellees. PEREZ DE TAGLE EMERGENCY RECIT HANOVER ET AL appealed a decision from the CFI of Pangasinan, holding it liable for the face value of fire insurance policies issued by HANOVER. One of the assigned errors raised by HANOVER is that the CFI erred when it considered the claims arising from the bonded palay (belonging to depositors) separately and independently from the claims arising from the unbonded palay (belonging to LEE BOG). The SC affirmed the CFI and held that its treatment of the bonded and unbonded palay was proper. Bonded palay and unbonded palay, deposited in the warehouse of a rice mill are treated separately for insurance purposes. They are distinct from one another and thus should be treated as such. I. FACTS An appeal from a decision of the CFI of Pangasinan holding HANOVER FIRE INSURANCE COMPANY OF THE CITY OF NEW YORK ET AL (HANOVER) liable for the face value of the fire insurance policies issued respectively by them. o The ET AL here refers to other insurance companies. The assured in these policies is plaintiff-appellee Lee Bog & Company (BOG). Insurance covered stock of rice and palay (loose and/or in sacks), the property of the assured or held by him in trust, on commission or on joint account with others and/or for which he is responsible in case of loss, while contained during the currency of the policies in the building of the assured in Binalonan, Pangasinan, otherwise known as the Binalonan, Pangasinan Rice Mill There was a common simple loss payable clause in favor of the Bureau of Commerce in all the policies issued by except Policy No. 1016373, issued by the Hanover Fire Insurance Company, which also contained a simple loss payable clause but in favor of the Peoples Surety & Insurance Co., Inc ISSUES

II.

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W/N the lower court erred in considering the claims on the bonded palay belonging to depositors separately and independently from the claim on the unbonded palay belonging to BOG (NAY) o [REASON WHY THIS IS AN ISSUE] HANOVER: because the policies sued upon were concurrent and each and all of them covered, in their entirety, inseparably and indivisibly, the stock of rice and palay kept in the insureds warehouse, whether belonging to the insured or to its depositors. Other issues omitted. III. HELD The decision appealed from is hereby affirmed with costs against appellants AKA HANOVER ET AL LOST RATIO As there is, however, a difference between bonded and unbonded palay and one is distinct from the other, each subject must really be treated separately. The palay insured by HANOVER ET AL under the aforesaid ten policies included no more than such of the palay as the warehouse received as deposits. o The palay insured by HANOVER ET AL payable to the Bureau of Commerce in case of loss covered only the palay that was received as deposits. This is the object of the requirement of law that every person licensed, under this Act1, to engage in the business of receiving rice for storage shall insure the rice as received and stored against fire. o This is the very reason why BOG insured said palay. HANOVER cannot pretend that they and BOG were not aware of the fact that the subject matter of the insurance policies upon which REPUBLIC OF THE PH (PH) is suing was solely the palay covered by the Bonded Warehouse Act. Upon the other hand, policy No. 1016373 issued by the Hanover Fire Insurance Company, which does not contain a clause common to the aforementioned ten policies, referred only to the unbonded deposits of the appellee.

IV.

DOCTRINE (lifted from the De Leon Book): Bonded palay and unbonded palay, deposited in the warehouse of a rice mill are treated separately for insurance purposes. o The law required that bonded palay belonging to third persons should be insured against fire. o IN case of loss, the value therein is payable to the Bureau of Commerce. o The warehouse receipts may prove the deposit of bonded palay o Unbonded palay may be determined from the records of purchase of palay and sales of milled rice.

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