Republic of the Philippines

SUPREME COURT
Manila

Wherefore, it prays that the assignee be ordered and directed to return

to the bank the money and merchandise, which were erroneously
delivered to him, and to also deliver the remaining 59,954 meters
of sinamay, or the proceeds in the event the property has been sold.

EN BANC
G.R. No. L-20993 December 22, 1923
In the matter of the involuntary insolvency of Umberto de Poli.
THE ASIA BANKING CORPORATION, claimant-appellant,
vs.
J.R. HERRIDGE, assignee-appellee.
Gibbs and McDonough for appellant.
Crossfield and O'Brien for appellee.
STATEMENT
As a supplemental statement of its claim against the estate of U. de
Poli, an insolvent, the Asia Banking Corporation alleges that, in
addition to its security mentioned in its claim presented December 20,
1920, and as amended October 18, 1921, it held, as further security,
three warehouse receipts in the form of letters issued to it by the
debtor as of August 21, 25, and September 4, 1920, of which the
following is a copy of the first:
MANILA, August 21, 1920.
Messrs. ASIA BANKING CORPORATION,
Manila, P.I.
DEAR SIRS: In addition to security now in your hands
covered by Quedanes, as collateral of my daily overdraft I
hold in my godown of No. 209 Estero de Binondo:

11,780 Buntal hats valued ......................

6,150 Balibuntal hats valued ..................

which bring my position to a total of

The other two letters are of the same tenor describing property of the
value of P42,015.
It is then alleged that of the property described in the letters, on
November 22, 1920, De Poli delivered possession to the bank of sixtyeight cases of sinamay and 22,920 Philippine hats; that at the time of
such delivery, the receipts of August 21st and September 4th were
returned to De Poli, who promised to deliver the reminder of the
property, which he failed to do; that of the property which was delivered
and stored in neutral warehouses 18,518 of the hats were sold for
P31,457.53; that the remaining 4,349, for the purposes of sale, were
forwarded to New York City; that their probable value is P4,511; that
due to a change in the management of the bank, the facts with
reference to the said warehouse receipts were lost, and that the
present management had no knowledge of such receipts, and for want
thereof, and upon the advice of its present counsel, the bank delivered
to the assignee the proceeds of the sale of the hats, together with
42,046 meters ofsinamay of the value of P12,420.24; that such
delivery was made through the error of both parties and in ignorance of
the existence of the "letter-warehouse receipts;" that, acting upon
information, which it received from the assignee, on November 23,
1921, the bank found the letters in question.

For answer, the assignee makes a general and specific denial of all of
the material allegations of the petition, and, as a further and special
defense, alleges that the bank has no valid security, or preference
whatever, by virtue of the "letter-warehouse receipts," for the reason
that they are null and void as against the general creditors of the
insolvent state. First, because they are not valid warehouse receipts
under the law, and are not evidenced by any public document, and that
the property was never delivered to the bank, and, as a second special
defense, alleges that the money and the property were voluntarily
surrendered by the bank to the assignee with the full knowledge of all
the facts and upon the advice of its present and former counsel, and,
as a counterclaim, the assignee alleges that, without any legal right,
the bank took and appropriated to its own use the property described
in the letters, and that it was then of the value of P142,500; that, giving
the bank credit for the money which it refunded to the assignee, there
is a balance due and owing from the bank to the assignee of
P98,622.23, for which he prays judgment against the bank.
The trial court denied the supplemental claim of the bank, and
rendered judgment to the effect that the assignee should "have and
recover of and from said Asia Banking Corporation the goods, wares,
and merchandise hereinbefore described and mentioned as having
been taken into the possession of the Asia Banking Corporation on
November 22, 1920, and stored on said date with the Derham
Warehouse & Shipping Company, or, in the event of sales thereof, the
proceeds of all of said property which has or shall have been sold, less
the charges paid for storage and insurance, subject to the further
orders of this court or of the Supreme Court in the premises."
From this decision the Asia Banking Corporation appeals, specifying
the following errors:
I. The trial court erred in failing to find and declare that the
claimant bank held a valid title to the money and
merchandise described in its supplemental claim and was
entitled to, preference with reference thereto over the
assignee and all other creditors.
II. Then trial court erred in finding that "Umberto de Poli was
at least suspected by the claimant bank of impending
insolvency" on the 22d of November, 1920, when it obtained
possession of the merchandise in question.
III. The trial court erred in finding to find that the negotiable
neutral warehouse receipts issued on November 22, 1920,
together with the previous letter pledges or promises to
pledge, conveyed to the claimant bank absolute title to the
said merchandise and that such title could only be defeated
by proof of fraud on the part of the bank.
IV. The trial court erred in holding that the assignee was and
is a third person with reference to the claimant bank.
V. The trial court erred in failing to order said assignee to
return the money and merchandise surrendered to him by
mistake.

JOHNS, J.:
Relying upon the decisions of this court in Mitsui Bussan
Kaisha vs. Hongkong & Shanghai Banking Corporation (36 Phil., 27),
and Mahoney vs. Tuason (39 Phil., 952), the attorneys for the bank
vigorously contend that in this kind of a proceeding the assignee does
not act for, or represent, general creditors of the insolvent estate, and

that he represents the insolvent only; that De Poli could not personally
question the legal force and effect of the "letter-warehouse receipts,"
and for such reasons his assignee cannot question them. It must be
conceded that the language used and the authorities cited in the Mitsui
Bussan Kaisha case tend to support counsel's contention. As applied
to the facts therein stated, the decision in the Kaisha case upon the
point in question was more or less obiter dictum, as in legal effect the
court held that the transaction there in question was valid even as
against general creditors. The question here involved is squarely met
and decided in the case of Security Warehousing Co. vs. Hand ([1907],
206 U.S. 415; 51 L. ed., 1117, 1122-1124), in which that court says:
There is, however, an important matter which has been
raised by the appellants aside from the merits. That is,
whether a trustee in bankcruptcy can question the validity of
these receipts, or the sufficiency of the alleged transfer of
the property belonging to the bankrupt knitting company, to
constitute a pledge of such property. The right is denied by
the appellants, and it is contended that the transfers were
valid between the parties; that the trustee in bankcruptcy
takes only the title and right of the bankrupt, and therefore
he cannot assert a right not possessed by the knitting
company.
It is no new doctrine that the assignee or trustee in
bankruptcy stands in the shoes of the bankrupt, and that the
property in is hands, unless otherwise provided in the
bankrupt act, is subject to all of the equities impressed upon
it in the hands of the bankrupt. This has been the rule under
former acts and is now the rule. (Hewit vs. Verlin Mach.
Works, 194 U. S., 296; 48 L. ed., 986; 24 Sup. Ct. Rep., 690;
Thompson vs. Fairbanks, 196 U.S., 516, 526; 49 L. ed., 577;
25 Sup. Ct. Rep., 306; Humphrey vs. Tatman, 198 U.S., 91;
49 L. ed., 956; 25 Sup. Ct. Rep., 567; York Mfg.
Co. vs. Cassell, 201 U.S., 344, 352; 50 L. ed., 782, 785; 26
Sup. Ct. Rep., 481.)
In analyzing its decision, that court quoted from its opinion in
Thompson vs. Fairbanks, supra, where it is said:
"Under the present bankrupt act, the trustee takes the
property of the bankrupt, in cases unaffected by fraud, in the
same plight and condition that the bankrupt himself held it,
and subject to all the equities impressed upon it in the hands
of the bankrupt, except in cases where there has been a
conveyance or encumbrance of the property which is void as
against the trustee by some positive provision of the act."
Also from its opinion in the York Mfg. Co. vs. Cassell, supra, in which it
is said:
This court had theretofore approved the remark in Re New
York Economical Printing Co., 49 C.C.A. 133; 110 Fed., 514,
518, that the present bankrupt act contemplates that a lien
good as against the bankrupt and all of his creditors at the
time of the filing of the petition in bankruptcy should remain
undisturbed. Hewit Case, supra. Upon these facts it was
reiterated that the trustee takes the property as the bankrupt
held it.
The case at bar bears no resemblance in its facts to the
cases just cited. There was no valid disposition of the
property in the case before us, or any valid lien. The socalled warehouse receipts issued by the warehousing
company to the knitting company, upon the facts of this
case, gave no lien under the law in Wisconsin in which state
they were issued. In such case this court follows the state
court.
The law is well stated in Ruling Case Law, vol. 3, page 231, where it is
said:

63. Nature and incidents of trustee's title. The trustee

takes the property of the bankrupt, in cases unaffected by
fraud, in the same plight and condition that the bankrupt
himself held it and subject to all the equities impressed upon
it in the hands of the bankrupt, except in cases where there
has been a conveyance or incumbrance of the property
which is void as against the trustee by some positive
provision of the Act. This was the rule under former
bankruptcy acts and continues to be the rule under the
present act. He does not take the property of the bankrupt as
a bona fide purchaser for value. It is only as to unlawful
preferences and property fraudulently conveyed that the
trustee has rights, in the interest of creditors, beyond those
that the bankrupt himself could have enforced.
In the notes, it is said:
The rule that the trustee takes the estate of the bankrupt in
the same plight as the bankrupt held it is not applicable to
liens which, although valid as to the bankrupt, are invalid as
to creditors. Baltimore First Nat. Bank vs. Staake, 202 U.S.,
141; 26 S. Ct., 580; 50 U.S. [L. ed.], 967, affirming 133 Fed.,
717; 66 C.C.A., 547; Forth St. Nat. Bank vs.Millbourne Mills
Co.'s Trustee, 172 Fed., 177; 96 C.C.A., 629; 30 L.R.A.
[N.S.], 552.
Corpus Juris, vol. 7, page 224, says:
(SEC. 345) D. Representation of creditors by trustee. The
trustee is not the representative of the bankrupt, but of the
creditors who are unsecured and who were such creditors at
the time of the filing of the petition; and he holds title to the
bankrupt's property in trust for the creditors and for the
purpose of distribution among them.
A trustee in bankruptcy, as the representative of the
creditors, may sue to recover property which has been
transferred by the bankrupt with intent to hinder, delay, or
defraud his creditors, or to give a preference, or money
which has been paid to create a preference. (P.
247.)lawphi1.net
(2) Avoidance of fraudulent transfer or preference. The
Bankruptcy Act in its present form expressly confers upon
courts of bankruptcy jurisdiction of proceedings by the
trustee to recover property transferred by the bankrupt in
fraud of his creditors, or money or property paid or
transferred with the intent to create a preference, where the
payment or transfer occurred within four months prior to the
filling of the petition in bankruptcy, regardless of the consent
of the defendant; and an action by a trustee on behalf of
creditors to avoid a transfer by the bankrupt which, under the
state law, such creditors might have avoided, although not
made within four months of the filing of the petition in
bankruptcy, may not be brought in the court of bankruptcy
without the consent of defendant. (P. 257.)
(1) By trustee (a) To recover preference. In an action to
recover an alleged preference, the burden rests upon the
trustee to establish the fact of a payment or transfer by the
bankrupt, and that it was preferential and avoidable rather
than legal. He must therefore show that the payment or
transfer took place within four months prior to the filing of the
petition in bankruptcy; that the bankrupt was insolvent at the
time thereof; that defendant knew of such insolvency and
had reasonable cause to believe that a preference was
intended, or, since the amendment of 1910, that the transfer
would effect a preference; and that the effect of the payment
or transfer would be to enable the recipient to obtain a
greater portion of his claim than other creditors of the same
class. (P. 270.)

In legal effect, that was the decision of this court in Te

Pate vs. Ingersoll, decided May 29, 1922, and reported in vol. 43,
Philippine Reports, page 394, in which this court said:
When goods or merchandise have been pledged to secure
the payment of a debt of a particular creditor, the other
creditors of the pledgor are "third persons" with relation to
the pledge contract and the pledgor and pledgee. This is so
because the insolvency proceedings operate to vest in the
assignee all of the estate of the insolvent debtor not exempt
by law from execution. This is true, also, because the
assignee is the representative of the creditors and not of the
bankrupt. (Civil Code, article 1865, in relation to articles
1863 and 1226; Bankruptcy and Insolvency Law, Act No.
1956, sec. 32; Tec Bi & Co. vs. Chartered Bank of India,
Australia and China [1916], 41 Phil., 596; 12
Manresa,Comentarios al Codigo Civil, pp. 416, et seq.;
Ocejo, Perez & Co. vs. International Banking Corporation
[1918], 37 Phil., 631.)
We hold that in all actions or proceedings to set aside or nullify
preferences of fraudulent transactions as void under the provisions of
section 70 of Act No. 1956, known as the Insolvency Law, the assignee
appears for, and represent, the general creditors, and that, in so far as
the decision of this court in the Kaisha case is in conflict upon that
point, it is hereby overruled.
Section 70 of the Act Provides:
If any debtor, being insolvent, or in contemplation of
insolvency, within thirty days before the filing of a petition by
or against him, with a view to giving a preference to any
creditor or person having a claim against him or who is
under any liability for him, procures any part of his property
to be attached, sequestered, or seized on execution, or
makes any payment, pledge, mortgage, assignment,
transfer, sale or conveyance of any part of his property,
either directly or indirectly, absolutely or conditionally, to
anyone, the person receiving such payment, pledge,
mortgage, assignment, transfer, sale, or conveyance, or to
be benefited thereby, or by such attachment or seizure,
having reasonable cause to believe that such debtor is
insolvent, and that such attachment, sequestration, seizure,
payment, pledge, mortgage, conveyance, transfer, sale or
assignment is made with a view to prevent his property from
coming to his assignee in insolvency, or to prevent the same
from being distributed ratably among his creditors, or to
defeat the object of, or in any way hinder, impede, or delay
the operation of or to evade any of the provisions of this Act,
such attachment, sequestration, seizure, payment, pledge,
mortgage, transfer, sale, assignment, or conveyance is void,
and the assignee, or the receiver, may recover the property,
or the value thereof, as assets of such insolvent debtor. If
such payment, pledge, mortgage, conveyance, sale,
assignment, or transfer is not made in the usual and ordinary
course of business of the debtor, or if such seizure is made
under a judgment which the debtor has confessed or offered
to allow, that fact shall be prima facie evidence of fraud. Any
payment, pledge, mortgage, conveyance, sale, assignment,
or transfer of property of whatever character made by the
insolvent within one month before the filing of a petition in
insolvency by or against him, except for a valuable pecuniary
consideration made in good faith, shall be void. All
assignments, transfers, conveyances, mortgages, or
incumbrances of real estate shall be deemed, under this
section, to have been made at the time the instrument
conveying or affecting such realty was filed for record in the
office of the register of deeds of the province or city where
the same is situated.
The important question here is whether the transaction in question
constitutes a valid lien in favor of the bank, or a reference which is void
as to creditors.

We do not agree with counsel for the bank that the letters of August
21st and 25th and September 4th are in legal force and effect
warehouse receipts. It is very apparent that the bank itself did not treat
or consider them in the form or nature of warehouse receipts. They
recite:
In addition to security now in your hands covered by
Quedanes, as collateral of my daily overdraft I hold in my
godown of No. 209 Estero de Binondo:
11,780 Buntal hats valued ........................
6,150 Balibuntal hats valued ..................

which bring my position to a total

When the bank took the actual physical possession of the property in
question, it was removed to the warehouses of Derham Bros., Inc., by
which a warehouse receipt, with all of its legal formalities and in the
usual and ordinary form, was issued to, and in favor of, the bank.
Prior to that time the bank never had the actual control or physical
possession of the property described in the August and September
letters. Although when written the letters may have had some legal
value as between the bank and De Poli, yet, standing alone and
without possession, they did not create any vested rights in the bank
as between it and the creditors of the insolvent estate. The record
shows that the bank took the physical possession of the property in
question on November 22, 1920, sixteen days prior to the time that De
Poli was adjudged insolvent. Hence, the question becomes important
as to how, why and in what capacity the bank took possession, and
whether it then knew or had reasonable grounds to believe that De Poli
was insolvent.
Upon the question of knowledge, in its opinion the trial court says:
On November 22, 1920, when the said Umberto de Poli was at least
suspected by the claimant bank of impending insolvency, the said bank
obtained possession of the 22,920 Philippine hats described in the
letters of August 21, and September 4, 1920, and of 42,046 meters of
the 102,000 meters of sinamay described in the letter of August 25,
1920, and stored the same with the Derham Warehouse & Shipping
Co., for which it received warehouse receipt No. 1701 in its own name.
Q. And what was the first time that you knew that U. de Poli
was about to be declared insolvent? A. I had an intimation
of it at the time of the delivery of the merchandise to us.
Q. Why was your attorney along with you. A. The
depressed physical appearance of Mr. De Poli lead me to
think he was in trouble.1awphi1.net
Q. Why did you come to go down there and get that property
on November 22d? Who told you to do that? A. Manager
Beldon.
Q. Did you ask him why? A. He stated that he wished to
obtain additional security to cover Mr. De Poli's overdraft with
us, and that Mr. De Poli had agreed to turn over certain
merchandise already pledged to us.
Q. Is it not a fact that these hats and this silk voile were
taken from the U. de Poli bodega at night? A. It started in
the afternoon about four or five o'clock and continued until
about eight o'clock possibly.

Q. Referring to your statement about the depressed

condition of Mr. U. De Poli at the time you took delivery of
these hats and this sinamay, how was that depression
evidenced? A. Mr. De Poli was very sad and depressed.
Q. Did he shed tears? A. In the presence of me and
Colonel Wolfson, he cried.
Q. And that lead you to suspect, for the first time as I
understand it, that he was in financial difficulties, is that so?
A. Yes, sir.
Mr. Schwarzkopf, who was then one of the attorneys for the
bank, testified:
A. No, sir, my advice was based upon the fact that there was
a rumor in the streets that the Philippine National Bank was
about to take over the U. de Poli assets.
Q. Why were they about to do that? A. I did not know.
Q. And when you gave the bank this advice you told them,
did you not, to take possession of this merchandise
immediately, working day and night if necessary, and to get
all they could out of this bodega? A. I told them to work
quickly, and if necessary to work day and night.
The reason why, the time and manner in which the bank took
possession clearly indicate that it knew, or that at least it had
reasonable grounds to believe, that De Poli was then insolvent.
Again, it is very apparent from the time and manner of taking
possession that it was not done "in the usual and ordinary course of
business of the debtor." It clearly indicates that the bank thought and
felt that an emergency existed, and that prompt action was required.
The fact that the bank then surrendered two of the letters in question to
the insolvent is conclusive proof that it then knew of the existence of
the letters, and that it then at least thought and understood that the
letters were of no legal value to the bank without possession of the
property. In other words, it then took possession of it to further protect
and secure its claim.
Among other things section 70 provides:
Any payment, pledge, mortgage, conveyance, sale
assignment, or transfer of property of whatever character
made by the insolvent within one month before the filing of a
petition in insolvency by or against him, except for a valuable
pecuniary consideration made in good faith, shall be void.
On page 35 of its opinion in the Kaisha case, this court says:
There is no dispute about the facts between the Hongkong
Bank and the intervener. Both agree that the title to the coal
in question was in Chua Teng Chong. As above indicated,
Chua Pue Tee, acting for Chua Teng Chong, attempted to
pledge the coal to the bank on the 13th of April, 1914, by
means of the private document, Exhibit 5. The bank, acting
in good faith and without any knowledge of the insolvency of
Chua Teng Chong, turned over to the latter's representative,
Chua Pue Tee, the P30,000 in cash in consideration for the
so-called pledge of April 13. On April 16 the bank, having in
the meantime discovered that Chua Teng Chong was
insolvent, secured a real pledge and took physical
possession of the coal. (36 Phil., 35.)
In other words, it is admitted there that, as a part of the transaction and
concurrent with the making and delivery of the private document there
in question, the Hongkong & Shanghai Bank parted with, and delivered
to Chua Teng Chong, "the P30,000 in cash in consideration for the socalled pledge of April 13," That was a present loan as distinguished

from a preexisting debt, in any by which the bank then and there
parted with its money with the express understanding and agreement
that it should have and receive a pledge of the property to secure the
P30,000. Therein lies the important legal distinction between it and the
instant case. Again, for aught that appears there, it was the only
transaction between the parties.
Here, De Poli was a customer of the bank with which he had numerous
previous dealings and a large overdraft at the time the letters in
question were written, and the transaction in question was one of many
dealings which he previously had with the bank, and the testimony of
Mr. Brandt above quoted is clear and convincing that the bank took
possession "to obtain additional security to cover Mr. De Poli's
overdraft with us." Assuming that to be true, it would follow that at the
time the bank took possession it had other and different security for its
claim against De Poli, and that possession was taken to secure a
preexisting debt, and that the transaction in question was not a pledge
or transfer of property for a valuable pecuniary consideration made in
good faith within the meaning of that portion of section 70 above
quoted.
In his supplemental brief of December 17th, counsel for the bank
points out that in one of his former briefs it is said:
That these promises to pledge "may possibly have been
executed to some extent in consideration of a preexisting
debt." And
"The bank in the present case was constantly advancing
money to the debtor at the time of the execution of the
private documents or promises to pledge as is sufficiently
shown on the face of those documents and by the proofs
offered in this case."
He then points out that:
The balance of the daily overdraft on August 21, 1920, when
the letter promises of that date was delivered to the bank
was P321,556.94: On the delivery of the letter of August 25,
1920, P348,925.94, and on the delivery of the letter of
September 4, 1920, P419,500.94. Thus it appears that the
debtor U. de Poli overdrew his current account to the extent
of P97,944 from August 12,1920, the date of the first letter,
to September 4, 1920, the date of the third and last letter
promise to pledge; that is to say, the debtor drew and the
bank parted with that amount as a present or subsequent
advancement against the security represented by those two
letter promises, and whatever other security may have been
deposited with the bank during the same period.
Subsequent to the execution and delivery of the letter
promise of September 4, 1920, the claimant bank, through
the same current account thus secured by the three letter
promises, advanced additional sums against all the
securities deposited until the total overdraft amounted to
over seven hundred thousand pesos . . . . This total
overdraft, together with the list of the securities held by the
bank, shows, conclusively that the latter, after the deposit of
such securities, including the three letter promises to pledge,
advanced against such securities sums largely in excess of
their value.
From which it is contended that the bank relied upon the letters for any
advances which it made after September 4th. That position is not
tenable and is not sustained by the proof.
With all due respect to learned counsel for the bank, there is no
financial statement of the bank in the record before us which shows the
condition of De Poli's account with the bank between those dates. The
first entry in Exhibit GG is December 16, 1921. Exhibit A shows the
condition of his account as of December 15, 1921, and neither exhibit
shows the condition of his bank account at any time during the year,
1920. It is true that in his letter of August 21st De Poli says:

Which bring my position to a total of P321,556.94.

be criticized for the making of an honest legal effort to protect the

interest of his client.

And in the one of August 25th, he says:

Which bring my today's position to a total of P348,925.94.
And in the one of September 4th, he says:

The judgment of the lower court is affirmed, without costs to either

party, and the case is remanded for an accounting and such further
proceedings as are not inconsistent with this opinion. So ordered.
Malcolm, Avancea, Villamor, Ostrand and Romualdez, JJ., concur.

Will bring my today's position to a total of P419,500.94.

But this court has no legal right to accept De Poli's statements in the
letters as to the amount of his overdraft in the bank as of those dates.
Accepting his statement of P348,925.94 as of August 25th, and adding
to it the P14,465, the value of the merchandise stated in the letter of
September 4th, you have a total of P363,570.94, and in the letter of
September 4th De Poli says:

Separate Opinions

Will bring my today's position to a total of P419,500.94

showing an unexplained difference of P55,930.
If it be a fact that the letters in question were written under an
agreement with the bank that it would loan De Poli a specific amount
on the merchandise evidenced by each letter, and that the bank made
him the loan under such an agreement and later took possession of
the merchandise described in the letters, another and a different
question would be presented, and the decision in the Kaisha case
would then be in point. But, here, the evidence tends to show that the
latters in question were written and possession of the property taken to
secure an open current account in the form of an overdraft evidencing
a preexisting debt as distinguished from a present loan, and there is a
failure of proof to show that the letters were written under an
agreement to secure a present loan, or that the bank made a present
loan and parted with its money under any such agreement.
Again, it will be noted that the letters in question are not public
instruments, and that neither of them is acknowledged or filed of
record.
Article 1865 of the Civil Code says:
No pledge shall be effective as against a third person unless
evidence of its date appears in a public instrument.
In the case of Te Pate vs. Ingersoll, above quoted, it is further said:
A pledge, to be valid against third persons, must be
evidenced by a public instrument. This is a mandatory
condition prescribed by article 1865 of the Civil Code, which
must be met in order to constitute the contract of pledge. An
assignee is a "third person" within the meaning of this article
of the Civil Code.
Upon the facts in record here, the assignee represents the creditors,
and is a third person within the meaning of article 1865.
From what has been said, it follows that the judgment of the lower
court on the merits must be affirmed.
The assignee did not appeal. Hence, many of the questions discussed
in his brief are not legally before this court. Suffice it to say that, upon
the question of value, we agree with the findings and conclusions of
the trial court as to the good faith of the bank and the disposition which
it made of the property, the accounting which it should make, and the
basis for its liability.
In their respective briefs and oral arguments, there is more or less
criticism of each other by opposing counsel, which is wholly immaterial
and of no value to the court. Suffice it to say that no attorney ought to

STREET, J., concurring:

I concur in the conclusion reached in this case but am unable to assent
to the proposition that the decision in Mitsui Bussan
Kaisha vs. Hongkong & Shanghai Banking Corporation (36 Phil., 27),
contains anything that must be overruled. A careful examination of that
decision will show I think that it rests upon the indisputable fact that the
Hongkong & Shanghai Banking was pledgee in due course and for a
valuable pecuniary consideration paid in good faith. The pledge was
therefore in all respects valid and could not be impeached by anybody,
whether the pledgor, the vendor of the coal, or the assignee in
bankruptcy. It must be confessed that the true ratio decidendi of that
decision is not expressed with absolute clarity; and at one point the
court might seem to have accepted the contention, advanced by the
attorneys for the Mitsui Bussan Kaisha, that "the assignee in
bankruptcy is not a third person, but stands in the shoes of the
bankrupt." But it cannot be fairly stated that the court intended to adopt
the proposition thus broadly stated. The pledge there effected was
undoubtedly binding on everybody, including the pledgor, the assignee
in bankruptcy, and on the Mitsui Bussan Kaisha, who claimed in right
hostile to both. But this was because of the bona fide character of the
pledge. Approaching insolvency, it must be remembered, does not
discapacitate a merchant from making transfers or pledges in ordinary
course, and a person who acquires rights by a bona fide purchase, or
pledge, for value paid down, acquires an indefeasible right even
though the transaction should be made on the very eve of insolvency.
In the case before us the pledge which was finally perfected by the
delivery to the Asia Banking Corporation of the warehouse receipts
issued by the Derham Company, was clearly not made "in the usual
and ordinary course of business of the debtor." It was therefore prima
facie invalid by the express provision of section 70 of Act No. 1956;
and it was incumbent on the pledgee to show that the pledge was in
fact made in good faith for a valuable pecuniary consideration. Now
assuming, that this requirement could have been met by proof showing
that the pledgee had advanced money in reliance upon the agreement
to pledge contained in the letters of August 21, August 25, and
September 4, 1920, yet we cannot discover that the bank did actually
advance anything contemporaneously with or subsequent to the writing
of those letters, upon the faith of the security therein pledged. On the
contrary it would seem that the imperfect pledge thereby attempted
was made for the purpose of securing advances that had already been
made. We note in this connection that in each of those letters De Poli
uses an expression which, it is suggested, indicates the extent of his
overdraft and that this overdraft was increasing pari passu with the
increase in the amount of merchandise thereby agreed to be pledged.
The expression referred to is that in which De Poli speaks of his
"position;" but "my to-day's position" as there used by him evidently
refers, not to the extent of his existing overdraft, but to the amount of
merchandise intended to be pledged. This is clearly shown by a
comparison of the letters of August 21 and August 25, from which it will
be seen that he is stating the total of the merchandise pledged, or
intended to be pledged. It results that those letters show nothing with
reference to the state of the contemporary overdraft. It therefore

cannot be inferred, even remotely, that the bank advanced anything

additional upon the faith of the increase in the amount of the intended
collateral.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. Nos. L-21000, 21002-21004, and 21006
1924

December 20,

In the matter of the involuntary insolvency of Umberto de Poli.

BANK OF THE PHILIPPINE ISLANDS, ET AL.,claimants-appellees,
vs.
J.R. HERRIDGE, assignee of the insolvent estate of U. de Poli,
BOWRING and CO., C.T. BOWRING and CO., LTD., and T.R.
YANGCO, creditors-appellants.
Crossfield and O'Brien, J.A. Wolfson and Camus and Delgado for
appellants.
Hartigan and Welch, Fisher and DeWitt and Gibbs and McDonough for
appellees.

OSTRAND, J.:
The present appeals, all of which relate to the Insolvency of U. de Poli,
have been argued together and as the principal questions involved are
the same in all of them, the cases will be disposed of in one decision.
The insolvent Umberto de Poli was for several years engaged on an
extensive scale in the exportation of Manila hemp, maguey and other
products of the country. He was also a licensed public warehouseman,
though most of the goods stored in his warehouses appear to have
been merchandise purchased by him for exportation and deposited
there by he himself.
In order to finance his commercial operations De Poli established
credits with some of the leading banking institutions doing business in
Manila at that time, among them the Hongkong & Shanghai Banking
Corporation, the Bank of the Philippine Islands, the Asia Banking
Corporation, the Chartered Bank of India, Australia and China, and the
American Foreign Banking Corporation. The methods by which he
carried on his business with the various banks was practically the
same in each case and does not appear to have differed from the
ordinary and well known commercial practice in handling export
business by merchants requiring bank credits.
De Poli opened a current account credit with the bank against which he
drew his checks in payment of the products bought by him for
exportation. Upon the purchase, the products were stored in one of his
warehouses and warehouse receipts issued therefor which were
endorsed by him to the bank as security for the payment of his credit in
the account current. When the goods stored by the warehouse receipts
were sold and shipped, the warehouse receipt was exchanged for
shipping papers, a draft was drawn in favor of the bank and against the
foreign purchaser, with bill of landing attached, and the entire proceeds
of the export sale were received by the bank and credited to the
current account of De Poli.itc-a1f
On December 8, 1920, De Poli was declared insolvent by the Court of
First Instance of Manila with liabilities to the amount of several million
pesos over and above his assets. An assignee was elected by the
creditors and the election was confirmed by the court on December 24,
1920. The assignee qualified on January 4, 1921, and on the same
date the clerk of the court assigned and delivered to him the property
of the estate.
Among the property taken over the assignee was the merchandise
stored in the various warehouses of the insolvent. This merchandise
consisted principally of hemp, maguey and tobacco. The various banks

holding warehouse receipts issued by De Poli claim ownership of this

merchandise under their respective receipts, whereas the other
creditors of the insolvent maintain that the warehouse receipts are not
negotiable, that their endorsement to the present holders conveyed no
title to the property, that they cannot be regarded as pledges of the
merchandise inasmuch as they are not public documents and the
possession of the merchandise was not delivered to the claimants and
that the claims of the holders of the receipts have no preference over
those of the ordinary unsecured creditors.
On July 20, 1921, the banks above-mentioned and who claim
preference under the warehouse receipts held by them, entered into
the following stipulation:lawphi1.net
It is stipulated by the between the undersigned counsel, for
the Chartered Bank of India, Australia & China, the
Hongkong & Shanghai Banking Corporation, the Asia
Banking Corporation and the Bank of Philippine Islands that:
Whereas, the parties hereto are preferred creditors of the
insolvent debtor U. de Poli, as evidenced by the following
quedans or warehouse receipts for hemp and maguey
stored in the warehouses of said debtor:
QUEDANS OR WAREHOUSE RECEIPTS OF THE CHARTERED
BANK
No. A-131 for 3,808 bales hemp.
No. A-157 for 250 bales hemp.
No. A-132 for 1,878 bales maguey.
No. A-133 for 1,574 bales maguey. Nos. 131, 132 and 133
all bear date November 6, 1920, and No. 157, November 19,
1920.
QUEDANS OR WAREHOUSE RECEIPTS OF THE HONGKONG &
SHANGHAI BANKING CORPORATION
No. 130 for 490 bales hemp and 321 bales maguey.
No. 134 for 1,970 bales hemp.
No. 135 for 1,173 bales hemp.
No. 137 for 237 bales hemp.
QUEDANS OR WAREHOUSE RECEIPTS OF THE ASIA BANKING
CORPORATION
No. 57 issued May 22, 1920, 360 bales hemp.
No. 93 issued July 8, 1920 bales hemp.
No. 103 issued August 18, 1920, 544 bales hemp.
No. 112 issued September 15, 1920, 250 bales hemp.
No. 111 issued September 15, 1920, 2,007 bales maguey.
QUEDANS OR WAREHOUSE RECEIPTS OF THE BANK OF THE
PHILIPPINE ISLANDS
No. 147 issued November 13, 1920, 393 bales hemp.
No. 148 issued November 13, 1920, 241 bales hemp.
No. 149 issued November 13, 1920, 116 bales hemp.
No. 150 issued November 13, 1920, 217 bales hemp.
And whereas much of the hemp and maguey covered by the above
mentioned quedans was either non-existent at the time of the issuance
of said quedans or has since been disposed of by the debtor and of
what remains much of the same hemp and maguey transferred by
means of quedans to one of the parties hereto has also been
transferred by means of other quedans to one or more of the other
parties hereto and
Whereas, the hemp and maguey covered by said quedans is to a
considerable extent commingled.

Now, therefore, it is hereby agreed subject to the rights of any other

claimants hereto and to the approval of this Honorable Court that all
that remains of the hemp and maguey covered by the warehouse
receipts of the parties hereto or of any of them shall be adjudicated to
them proportionately by grades in accordance with the quedans held
by each as above set forth in accordance with the rule laid down in
section 23 of the Warehouse Receipts Law for the disposition of
commingled fungible goods.
Manila, P.I., July 20, 1921.
GIBBS, MCDONOUGH & JOHNSON
By A. D. GIBBS
Attorneys for the Chartered Bank
of India, Australia & China

was other language in said receipts, such as would show their intention
in some way to make said receipts negotiable, then there would be
some reason for the construction given by the court. In the absence of
language showing such intention, the court, by substituting the phrase
"a la orden" for the phrase "por orden," is clearly making a new
contract between the parties which, as shown by the language used by
them, they never intended to enter into."
These very positive assertions have, as far as we can see, no
foundation in fact and rest mostly on misconceptions.
Section 2 of the Warehouse Receipts Act (No. 2137) prescribes the
essential terms of such receipts and reads as follows:
Warehouse receipts needed not be in any particular form,
but every such receipt must embody within its written or
printed terms

FISHER & DEWITT

By C.A. DEWITT
Attorneys for the Hongkong & Shanghai
Banking Corporation
WOLFSON, WOLFSON & SCHWARZKOFF
Attorneys for the Asia Banking Corporation
HARTIGAN & WELCH
Attorneys for the Bank of the Philippine Islands
Claims for hemp and maguey covered by the respective warehouse
receipts of the banks mentioned in the foregoing stipulation were
presented by each of said banks. Shortly after the adjudication of the
insolvency of the firm of Wise & Co., one of the unsecured creditors of
the insolvent on June 25, 1921, presented specific written objections to
the claims of the banks on the ground of the insufficiency of the
warehouse receipts and also to the stipulation above quoted on the
ground that it was entered into for the purpose of avoiding the
necessity of identifying the property covered by each warehouse
receipt. Bowring & Co., C.T. Bowring Co., Ltd., and Teodoro R. Yangco,
also unsecured creditors of the insolvent, appeared in the case after
the decision of the trial court was rendered and joined with the
assignee in his motion for a rehearing and in his appeal to this court.
Upon hearing, the court below held that the receipts in question were
valid negotiable warehouse receipts and ordered the distribution of the
hemp and maguey covered by the receipts among the holders thereof
proportionately by grades, in accordance with the stipulation above
quoted, and in a supplementary decision dated November 2, 1921, the
court adjudged the merchandise covered by warehouse receipts Nos.
A-153 and A-155 to the Asia Banking Corporation. From these
decisions the assignee of the insolvent estate, Bowring & Co., C.T.
Bowring Co., Ltd., and Teodoro R. Yangco appealed to this court.
The warehouse receipts are identical in form with the receipt involved
in the case of Roman vs. Asia Banking Corporation(46 Phil., 705), and
there held to be a valid negotiable warehouse receipt which, by
endorsement, passed the title to the merchandise described therein to
the Asia Banking Corporation. That decision is, however, vigorously
attacked by the appellants, counsel asserting, among other things, that
"there was not a single expression in that receipt, or in any of those
now in question, from which the court could or can say that the parties
intended to make them negotiable receipts. In fact, this is admitted in
the decision by the statement "... and it contains no other direct
statement showing whether the goods received are to be delivered to
the bearer, to a specified person, or to a specified person or his order."
There is nothing whatever in these receipts from which the court can
possibly say that the parties intended to use the phrase "a la orden"
instead of the phrase "por orden," and thus to make said receipts
negotiable. On the contrary, it is very clear from the circumstances
under which they were issued, that they did not intend to do so. If there

(a) The location of the warehouse where the goods are

stored,
(b) The date of issue of the receipt,
(c) The consecutive number of the receipt,
(d) A statement whether the goods received will be delivered
to the bearer, to a specified person, or to a specified person
or his order,
(e) The rate of storage charges,
(f) A description of the goods or of the packages containing
them,
(g) The signature of the warehouseman, which may be made
by his authorized agent,
(h) If the receipt is issued for goods of which the
warehouseman is owner, either solely or jointly or in
common with others, the fact of such ownership, and
(i) A statement of the amount of advances made and of
liabilities incurred for which the warehouseman claims a lien.
If the precise amount of such advances made or of such
liabilities incurred is, at the time of the issue of the receipt,
unknown to the warehouseman or to his agent who issues it,
a statement of the fact that advances have been made or
liabilities incurred and the purpose thereof is sufficient.
A warehouseman shall be liable to any person injured
thereby, for all damage caused by the omission from a
negotiable receipt of any of the terms herein required.
Section 7 of the Act reads:
A nonnegotiable receipt shall have plainly placed upon its
face by the warehouseman issuing it "nonnegotiable," or "not
negotiable." In case of the warehouseman's failure so to do,
a holder of the receipt who purchased it for value supposing
it to be negotiable, may, at his option, treat such receipt as
imposing upon the warehouseman the same liabilities he
would have incurred had the receipt been negotiable.
All of the receipts here in question are made out on printed blanks and
are identical in form and terms. As an example, we may take receipt
No. A-112, which reads as follows:
U. DE POLI
209 Estero de Binondo

BODEGAS

QUEDAN No. A-112

Almacen Yangco
Por
Marcas
UDP

Bultos
250

Clase de
las
mercancia
s
Fardos
abaca

"Quedan depositados en estos

almacenes por orden del Sr. U. de
Poli la cantidad de doscientos
cincuenta fardos abaca segun
marcas detalladas al margen, y con
arreglo a las condiciones siguientes:
1.a Estan asegurados contra riesgo
de incendios exclusivamente, segun
las condiciones de mis polizas;
quedando los demas por cuenta de
los depositantes.
2.a No se responde del peso, clase ni
mal estado de la mercancia
depositada.
3.a El almacenaje sera de quince
centimos fardo por mes.

I certify that I am the sole

owner of the merchandise
herein described.
(Sgd.) "UMBERTO DE POLI

4.a El seguro sera de un octavo por

ciento mensual por el total. Tanto el
almacenaje como el seguro se
cobraran por meses vencidos, y con
arreglo a los dias devengados
siendo el minimo para los efectos del
cobro 10 dias.
5.a No seran entregados dichos
efectos ni parte de los mismos sin la
presentacion de este "quedan" para
su correspondiente deduccion.
6.a El valor para el seguro de estas
mercancias es de pesos filipinos
nueve mil quinientos solamentes.
7.a Las operaciones de entrada y
salida, seran de cuenta de los
depositantes, pudiendo hacerlos con
sus trabajadores, o pagando los que
le sean facilitados, con arreglo a los
tipos que tengo convenido con los
mios.

Valor del Seguro P9,500.

V. B.
(Sgd.) UMBERTO DE POLI

Manila, 15 de sept. de 1920.

El Encargado,
(Sgd.) I. MAGPANTAY

The receipt is not marked "nonnegotiable" or "not negotiable," and is

endorsed "Umberto de Poli."
As will be seen, the receipt is styled "Quedan" (warehouse receipt) and
contains all the requisites of a warehouse receipt as prescribed by
section 2, supra, except that it does not, in express terms, state
whether the goods received are to be delivered to bearer, to a

specified person or to his order. The intention to make it a negotiable

warehouse receipt appears, nevertheless, quite clearly from the
document itself: De Poli deposited the goods in his own warehouse;
the warehouse receipt states that he is the owner of the goods
deposited; there is no statement that the goods are to be delivered to
the bearer of the receipt or to a specified person and the presumption
must therefore necessarily be that the goods are in the warehouse
subject to the orders of their owner De Poli. As the owner of the goods
he had, of course, full control over them while the title remained in him;
we certainly cannot assume that it was the intention to have the goods
in the warehouse subject to no one's orders. That the receipts were
intended to be negotiable is further shown by the fact that they were
not marked "nonnegotiable" and that they were transferred by the
endorsement of the original holder, who was also the warehouseman.
In his dual capacity of warehouseman and the original holder of the
receipt, De Poli was the only party to the instrument at the time of its
execution and the interpretation he gave it at that time must therefore
be considered controlling as to its intent.
In these circumstances, it is hardly necessary to enter into any
discussion of the intended meaning of the phrase "por orden" occurring
in the receipts, but for the satisfaction of counsel, we shall briefly state
some of our reasons for the interpretation placed upon that phrase in
the Felisa Roman case:
The rule is well-known that wherever possible writings must be so
construed as to give effect to their general intent and so as to avoid
absurdities. Applying this rule, it is difficult to see how the phrase in
question can be given any other rational meaning than that suggested
in the case mentioned. It is true that the meaning would have been
more grammatically expressed by the word "a la orden"; the world "por
preceding the word "orden" is generally translated into the English
language as "by" but "por" also means "for" or "for the account of"
(see Velazquez Dictionary) and it is often used in the latter sense. The
grammatical error of using it in connection with "orden" in the present
case is one which might reasonably be expected from a person
insufficiently acquainted with the Spanish language.
If the receipt had been prepared in the English language and had
stated that the goods were deposited "for order" of U. de Poli, the
expression would not have been in accordance with good usage, but
nevertheless in the light of the context and that circumstances would
be quite intelligible and no one would hesitate to regard "for order" as
the equivalent of "to the order." Why may not similar latitude be
allowed in the construction of a warehouse receipt in the Spanish
language?
If we were to give the phrase the meaning contended for by counsel, it
would reveal no rational purpose. To say that a warehouseman
deposited his own goods with himself by his own order seems
superfluous and means nothing. The appellants' suggestion that the
receipt was issued by Ireneo Magpantay loses its force when it is
considered that Magpantay was De Poli's agent and that his words and
acts within the scope of his agency were, in legal effect, those of De
Poli himself. De Poli was the warehouseman and not Magpantay.
Counsel for the appellants also assail the dictum in our decision in the
Felisa Roman case that section 7 of the Warehouse Receipts Act
"appears to give any warehouse receipt not marked "nonnegotiable" or
"not negotiable" practically the same effect as a receipt which by its
terms is negotiable provided the holder of such unmarked receipt
acquired it for value supposing it to be negotiable." The statement is,
perhaps, too broad but it certainly applies in the present case as
against the appellants, all of whom are ordinary unsecured creditors
and none of them is in position to urge any preferential rights.
As instruments of credit, warehouse receipts play a very important role
in modern commerce and the present day tendency of the courts is
towards a liberal construction of the law in favor of a bona fide holder
of such receipts. Under the Uniform Warehouse Receipts Act, the
Supreme Court of New York in the case of Joseph vs. P. Viane, Inc.
( [1922], 194 N.Y. Supp., 235), held the following writing a valid
warehouse receipt:

"Original. Lot No. 9. New York, November 19, 1918. P.

Viane, Inc., Warehouse, 511 West 40th Street, New York
City. For account of Alpha Litho. Co., 261 9th Avenue. Marks:
Fox Film Co. 557 Bdles 835- R. 41 x 54-116. Car Number:
561133. Paul Viane, Inc. E.A. Thompson. P. Viane, Inc.,
Warehouse."
In the case of Manufacturers' Mercantile Co vs. Monarch Refrigerating
Co.
( [1915], 266 III., 584), the Supreme Court of Illinois said:
The provisions of Uniform Warehouse Receipts Act, sec. 2
(Hurd's Rev. St. 1913, c. 114, sec. 242), as to the contents of
the receipt, are for the benefit of the holder and of
purchasers from him, and failure to observe these
requirements does not render the receipt void in the hands
of the holder.
In the case of Hoffman vs. Schoyer ( [1892], 143 III., 598), the court
held that the failure to comply with Act III, April 25, 1871, which
requires all warehouse receipts for property stored in Class C to
"distinctly state on their face the brands or distinguishing marks upon
such property," for which no consequences, penal or otherwise, are
imposed, does not render such receipts void as against an assignee
for value.
The appellants argue that the receipts were transferred merely as
security for advances or debts and that such transfer was of no effect
without a chattel mortgage or a contract of pledge under articles 1867
and 1863 of the Civil Code. This question was decided adversely to the
appellants' contention in the case of Roman vs. Asia Banking
Corporation, supra. The Warehouse Receipts Act is complete in itself
and is not affected by previous legislation in conflict with its provisions
or incompatible with its spirit or purpose. Section 58 provides that
within the meaning of the Act "to "purchase" includes to take as
mortgagee or pledgee" and "purchaser" includes mortgagee and
pledgee." It therefore seems clear that, as to the legal title to the
property covered by a warehouse receipt, a pledgee is on the same
footing as a vendee except that the former is under the obligation of
surrendering his title upon the payment of the debt secured. To hold
otherwise would defeat one of the principal purposes of the Act, i. e., to
furnish a basis for commercial credit.
The appellants also maintain that baled hemp cannot be regarded as
fungible goods and that the respective warehouse receipts are only
good for the identical bales of hemp for which they were issued. This
would be true if the hemp were ungraded, but we can see no reason
why bales of the same government grade of hemp may not, in certain
circumstances, be regarded as fungible goods. Section 58 of the
Warehouse Receipts Act defines fungible goods as follows:
"Fungible goods" means goods of which any unit is, from its
nature or by mercantile custom, treated as the equivalent of
any other unit.
In the present case the warehouse receipts show how many bales of
each grade were deposited; the Government grade of each bale was
clearly and permanently marked thereon and there can therefore be no
confusion of one grade with another; it is not disputed that the bales
within the same grade were of equal value and were sold by the
assignee for the same price and upon the strength of the Government
grading marks. Moreover, it does not appear that any of the claimant
creditors, except the appellees, hold warehouse receipts for the goods
here in question. Under these circumstances, we do not think that the
court below erred in treating the bales within each grade as fungible
goods under the definition given by the statute. It is true that sections
22 and 23 provide that the goods must be kept separated and that the
warehouseman may not commingle goods except when authorized by
agreement or custom, but these provisions are clearly intended for the
benefit of the warehouseman. It would, indeed, be strange if the
warehouseman could escape his liability to the owners of the goods by
the simple process of commingling them without authorization. In the
present case the holders of the receipts have impliedly ratified the acts

of the warehouseman through the pooling agreement hereinbefore

quoted.
The questions so far considered are common to all of the claims now
before us, but each claim has also its separate features which we shall
now briefly discuss:
R.G. Nos. 21000 AND 21004
CLAIMS OF THE BANK OF THE PHILIPPINE ISLANDS AND THE
GUARANTY TRUST COMPANY OF NEW YORK
The claim of the Bank of the Philippine Islands is supported by four
warehouse receipts, No. 147 for 393 bales of hemp, No. 148 for 241
bales of hemp, No. 149 for 116 bales of hemp and No. 150 for 217
bales of hemp. Subsequent to the pooling agreement these warehouse
receipts were signed, endorsed and delivered to the Guaranty Trust
Company of New York, which company, under a stipulation of October
18, 1921, was allowed to intervene as a party claiming the goods
covered by said receipts, and which claim forms the subject matter of
the appeal R.G. No. 21004. All of the warehouse receipts involved in
these appeals were issued on November 13, 1920, and endorsed over
the Bank of the Philippine Islands.
On November 16, 1920, De Poli executed and delivered to said bank a
chattel mortgage on the same property described in the receipts, in
which chattel mortgage no mention was made of the warehouse
receipts. This mortgage was registered in the Office of the Register of
Deeds of Manila on November 18, 1920.
The appellants argue that the obligations created by the warehouse
receipts were extinguished by the chattel mortgage and that the validity
of the claim must be determined by the provisions of the Chattel
Mortgage Law and not by those of the Warehouse Receipts Act, or, in
other words, that the chattel mortgage constituted a novation of the
contract between the parties.
Novations are never presumed and must be clearly proven. There is
no evidence whatever in the record to show that a novation was
intended. The chattel mortgage was evidently taken as additional
security for the funds advanced by the bank and the transaction was
probably brought about through a misconception of the relative values
of warehouse receipts and chattel mortgages. As the warehouse
receipts transferred the title to the goods to the bank, the chattel
mortgage was both unnecessary and inefficatious and may be properly
disregarded.
Under the seventh assignment of error the appellants argue that as De
Poli was declared insolvent by the Court of First Instance of Manila on
December 8, 1920, only twenty-five days after the warehouse receipts
were issued, the latter constituted illegal preferences under section 70
of the Insolvency Act. In our opinion the evidence shows clearly that
the receipts were issued in due and ordinary course of business for a
valuable pecuniary consideration in good faith and are not illegal
preferences.
R.G. No. 21002
CLAIM OF THE HONGKONG & SHANGHAI BANKING
CORPORATION
The warehouse receipts held by this claimant-appellee are numbered
A-130 for 490 bales of hemp and 321 bales of maguey, No. A-134 for
1,970 bales of hemp, No. A-135 for 1,173 bales of hemp and No. A137 for 237 bales of hemp, were issued by De Poli and were endorsed
and delivered to the bank on or about November 8, 1920. The
appellants maintain that the bank at the time of the delivery to it of the
warehouse receipts had reasonable cause to believe that De Poli was
insolvent, and that the receipts therefore constituted illegal preferences
under the Insolvency Law and are null and void. There is nothing in the
record to support this contention.

The other assignments of error relate to questions which we have

already discussed and determined adversely to the appellants.
R.G. No. 21003
CLAIM OF THE CHARTERED BANK OF INDIA, AUSTRALIA & CHINA
This claimant holds warehouse receipts Nos. 131 for 3,808 bales of
hemp, A-157 for 250 bales of hemp, A-132 for 1,878 bales of maguey
and A-133 for 1,574 bales of maguey. Nos. A-131, A-132 and A-133
bear the date of November 6, 1920, and A-157 is dated November 19,
1920.
Under the fourth assignment of error, the appellants contend that the
court erred in permitting counsel for the claimant bank to retract a
withdrawal of its claim under warehouse receipt No. A-157. It appears
from the evidence that during the examination of the witness Fairnie,
who was the local manager of the claimant bank, counsel for the bank,
after an answer made by Mr. Fairnie to one of his questions, withdrew
the claim under the warehouse receipt mentioned, being under the
impression that Mr. Fairnie's answer indicated that the bank had
knowledge of De Poli's pending insolvency at the time the receipt was
delivered to the bank. Later on in the proceedings the court, on motion
of counsel, reinstated the claim. Counsel explains that by reason of Mr.
Fairnie's Scoth accent and rapid style of delivery, he misunderstood his
answer and did not discover his mistake until he read the transcript of
the testimony.
The allowance of the reinstatement of the claim rested in the sound
discretion of the trial court and there is nothing in the record to show
that this discretion was abused in the present instance.
Under the fifth assignment of error appellants argue that the manager
of the claimant bank was informed of De Poli's difficulties on November
19, 1920, when he received warehouse receipt No. A-157 and had
reasonable cause to believe that De Poli was insolvent and that the
transaction therefore constituted an illegal preference.
Mr. Fairnie, who was the manager of the claimant bank at the time the
receipt in the question was delivered to the bank, testifies that he had
no knowledge of the impending insolvency and Mr. De Poli, testifying
as a witness for the assignee-appellee, stated that he furnished the
bank no information as to his failing financial condition at any time prior
to the filing of the petition for his insolvency, but that on the contrary he
advised the bank that his financial condition was sound.

The testimony of the same witnesses also shows that the bank
advanced the sum of P20,000 to De Poli at Cebu against the same
hemp covered by warehouse receipt No. A-157 as early as October,
1920, and that upon shipment thereof to Manila the bill of lading, or
shipping documents, were made out in favor of the Chartered Bank
and forwarded to it at Manila; that upon the arrival of the hemp at
Manila, Mr. De Poli, by giving a trust receipt to the bank for the bill of
lading, obtained possession of the hemp with the understanding that
the warehouse receipt should be issued to the bank therefor, and it
was in compliance with that agreement previously made that the
receipt was issued on November 19, 1920. Upon the facts stated we
cannot hold that the bank was given an illegal preference by the
endorsement to it of the warehouse receipt in question. (Mitsui Bussan
Kaisha vs. Hongkong & Shanghai Banking Corporation, 36 Phil., 27.)
R.G. No. 21006
CLAIM OF THE ASIA BANKING CORPORATION
Claimant holds warehouse receipts Nos. A-153, dated November 18,
1920, for 139 bales of tobacco, A-154, dated November 18, 1920, for
211 bales of tobacco, A-155, dated November 18, 1920, for 576 bales
of tobacco, A-57, dated May 22, 1920, for 360 bales of hemp, A-93,
dated July 8, 1920, for 382 bales of hemp, A-103, dated August 18,
1920, for 544 bales of hemp, A-112, dated September 15, 1920, for
250 bales of hemp and A-111, dated September 15, 1920, for 207
bales of maguey.
The assignments of error in connection with this appeal are, with the
exception of the fourth, similar to those in the other cases and need not
be further discussed.
Under the fourth assignment, the appellants contend that warehouse
receipts Nos. A-153, A-154 and A-155 were illegal preferences on the
assumption that the claimant bank must have had reasonable reasons
to believe that De Poli was insolvent on November 18, 1920, when the
three receipts in question were received. In our opinion, the practically
undisputed evidence of the claimant bank sufficiently refutes this
contention.
For the reasons hereinbefore stated the judgments appealed from are
hereby affirmed, without costs. So ordered.
Street, Malcolm, Avancea, Villamor, and Romualdez, JJ., concur.