[G.R. No. 119231.

April 18, 1996]

PHILIPPINE NATIONAL BANK, petitioner, vs. HON. PRES. JUDGE

BENITO C. SE, JR., RTC, BR. 45, MANILA; NOAHS ARK SUGAR
REFINERY; ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T.
GO, respondents.
SYLLABUS
1. COMMERCIAL
LAW;
WAREHOUSE
RECEIPTS
LAW;
THE
UNCONDITIONAL PRESENTMENT OF THE RECEIPTS FOR PAYMENT
CARRIED WITH IT THE ADMISSIONS OF THE EXISTENCE AND
VALIDITY OF THE TERMS, CONDITIONS AND STIPULATIONS
WRITTEN ON THE FACE OF THE WAREHOUSE RECEIPTS,
INCLUDING THE UNQUALIFIED RECOGNITION OF THE PAYMENT OF
WAREHOUSEMANS LIEN FOR STORAGE FEES AND PRESERVATION
EXPENSES; CASE AT BAR. - Petitioner is in estoppel in disclaiming
liability for the payment of storage fees due the private respondents as
warehouseman while claiming to be entitled to the sugar stocks covered
by the subject Warehouse Receipts on the basis of which it anchors its
claim for payment or delivery of the sugar stocks. The unconditional
presentment of the receipts by the petitioner for payment against private
respondents on the strength of the provisions of the Warehouse Receipts
Law (R.A. 2137) carried with it the admission of the existence and validity
of the terms, conditions and stipulations written on the face of the
Warehouse Receipts, including the unqualified recognition of the payment
of warehousemans lien for storage fees and preservation expenses.
Petitioner may not now retrieve the sugar stocks without paying the lien
due private respondents as warehouseman.
2. ID.; ID.; ID.; WAREHOUSEMANS LIEN; POSSESSORY IN NATURE.
- While the PNB is entitled to the stocks of sugar as the endorsee of the
quedans, delivery to it shall be effected only upon payment of the storage
fees. Imperative is the right of the warehouseman to demand payment of
his lien at this juncture, because, in accordance with Section 29 of the
Warehouse Receipts Law, the warehouseman loses his lien upon goods

by surrendering possession thereof. In other words, the lien may be lost

where the warehouseman surrenders the possession of the goods without
requiring payment of his lien, because a warehousemans lien is
possessory in nature.
APPEARANCES OF COUNSEL
Rolan A. Nieto for petitioner.
Madella & Cruz Law Offices for private respondents.

DECISION
HERMOSISIMA, JR., J.:

The source of conflict herein is the question as to whether the Philippine

National Bank should pay storage fees for sugar stocks covered by five (5)
Warehouse Receipts stored in the warehouse of private respondents in the
face of the Court of Appeals decision (affirmed by the Supreme Court)
declaring the Philippine National Bank as the owner of the said sugar stocks
and ordering their delivery to the said bank. From the same facts but on a
different perspective, it can be said that the issue is: Can the warehouseman
enforce his warehousemans lien before delivering the sugar stocks as ordered
by the Court of Appeals or need he file a separate action to enforce payment
of storage fees?
The herein petition seeks to annul: (1) the Resolution of respondent Judge
Benito C. Se, Jr. of the Regional Trial Court of Manila, Branch 45, dated
December 20, 1994, in Civil Case No. 90-53023, authorizing reception of
evidence to establish the claim of respondents Noahs Ark Sugar Refinery, et
al., for storage fees and preservation expenses over sugar stocks covered by
five (5) Warehouse Receipts which is in the nature of a warehousemans lien;
and (2) the Resolution of the said respondent Judge, dated March 1, 1995,
declaring the validity of private respondents warehousemans lien under
Section 27 of Republic Act No 2137 and ordering that execution of the Court
of Appeals decision, dated December 13, 1991, be in effect held in abeyance
until the full amount of the warehousemans lien on the sugar stocks covered

by five (5) quedans subject of the action shall have been satisfied conformably
with the provisions of Section 31 of Republic Act 2137.
Also prayed for by the petition is a Writ of Prohibition to require respondent
RTC Judge to desist from further proceeding with Civil Case No. 90-53023,
except order the execution of the Supreme Court judgment; and a Writ of
Mandamus to compel respondent RTC Judge to issue a Writ of Execution in
accordance with the said executory Supreme Court decision.
THE FACTS
In accordance with Act No. 2137, the Warehouse Receipts Law, Noahs Ark
Sugar Refinery issued on several dates, the following Warehouse Receipts
(Quedans): (a) March 1, 1989, Receipt No. 18062, covering sugar deposited
by Rosa Sy; (b) March 7, 1989, Receipt No. 18080, covering sugar deposited
by RNS Merchandising (Rosa Ng Sy); (c) March 21, 1989, Receipt No. 18081,
covering sugar deposited by St. Therese Merchandising; (d)March 31, 1989,
Receipt No. 18086, covering sugar deposited by St. Therese Merchandising;
and (e) April 1, 1989, Receipt No. 18087, covering sugar deposited by RNS
Merchandising. The receipts are substantially in the form, and contains the
terms, prescribed for negotiable warehouse receipts by Section 2 of the law.
Subsequently, Warehouse Receipts Nos. 18080 and 18081 were
negotiated and endorsed to Luis T. Ramos; and Receipts Nos. 18086, 18087
and 18062 were negotiated and endorsed to Cresencia K. Zoleta. Ramos and
Zoleta then used the quedans as security for two loan agreements - one for
P15.6 million and the other for P23.5 million - obtained by them from the
Philippine National Bank. The aforementioned quedans were endorsed by
them to the Philippine National Bank.
Luis T. Ramos and Cresencia K. Zoleta failed to pay their loans upon
maturity on January 9, 1990. Consequently, on March 16, 1990, the Philippine
National Bank wrote to Noahs Ark Sugar Refinery demanding delivery of the
sugar stocks covered by the quedans endorsed to it by Zoleta and Ramos.
Noahs Ark Sugar Refinery refused to comply with the demand alleging
ownership thereof, for which reason the Philippine National Bank filed with the
Regional Trial Court of Manila a verified complaint for Specific Performance

with Damages and Application for Writ of Attachment against Noahs Ark Sugar
Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, the last three
being identified as the sole proprietor, managing partner, and Executive Vice
President of Noahs Ark, respectively.
Respondent Judge Benito C. Se, Jr., in whose sala the case was raffled,
denied the Application for Preliminary Attachment. Reconsideration therefor
was likewise denied.
Noahs Ark and its co-defendants filed an Answer with Counterclaim and
Third-Party Complaint in which they claimed that they are the owners of the
subject quedans and the sugar represented therein, averring as they did that:
9.*** In an agreement dated April 1, 1989, defendants agreed to sell to Rosa Ng Sy of
RNS Merchandising and Teresita Ng of St. Therese Merchandising the total
volume of sugar indicated in the quedans stored at Noahs Ark Sugar Refinery for a
total consideration of P63,000,000.00,
*** The corresponding payments in the form of checks issued by the vendees in favor
of defendants were subsequently dishonored by the drawee banks by reason of
payment stopped and drawn against insufficient funds,
*** Upon proper notification to said vendees and plaintiff in due course, defendants
refused to deliver to vendees therein the quantity of sugar covered by the subject
quedans.
10. *** Considering that the vendees and first endorsers of subject quedans did not
acquire ownership thereof, the subsequent endorsers and plaintiff itself did not acquire
a better right of ownership than the original vendees/first endorsers. 1
The Answer incorporated a Third-Party Complaint by Alberto T. Looyuko,
Jimmy T. Go and Wilson T. Go, doing business under the trade name and
style Noahs Ark Sugar Refinery against Rosa Ng Sy and Teresita Ng, praying
that the latter be ordered to deliver or return to them the quedans (previously
endorsed to PNB and the subject of the suit) and pay damages and litigation
expenses.

The Answer of Rosa Ng Sy and Teresita Ng, dated September 6, 1990,

one of avoidance, is essentially to the effect that the transaction between
them, on the one hand, and Jimmy T. Go, on the other, concerning the
quedans and the sugar stocks covered by them was merely a simulated one
being part of the latters complex banking schemes and financial maneuvers,
and thus, they are not answerable in damages to him.
On January 31, 1991, the Philippine National Bank filed a Motion for
Summary Judgment in favor of the plaintiff as against the defendants for the
reliefs prayed for in the complaint.
On May 2, 1991, the Regional Trial Court issued an order denying the
Motion for Summary Judgment. Thereupon, the Philippine National Bank filed
a Petition for Certiorari with the Court of Appeals, docketed as CA-G.R. SP.
No. 25938 on December 13, 1991.
Pertinent portions of the decision of the Court of Appeals read:
In issuing the questioned Orders, the respondent Court ruled that questions of law
should be resolved after and not before, the questions of fact are properly litigated. A
scrutiny of defendants affirmative defenses does not show material questions of fact
as to the alleged nonpayment of purchase price by the vendees/first endorsers, and
which nonpayment is not disputed by PNB as it does not materially affect PNBs title
to the sugar stocks as holder of the negotiable quedans.
What is determinative of the propriety of summary judgment is not the existence of
conflicting claims from prior parties but whether from an examination of the
pleadings, depositions, admissions and documents on file, the defenses as to the main
issue do not tender material questions of fact (see Garcia vs. Court of Appeals, 167
SCRA 815) or the issues thus tendered are in fact sham, fictitious, contrived, set up in
bad faith or so unsubstantial as not to constitute genuine issues for trial. (See Vergara
vs. Suelto, et al., 156 SCRA 753; Mercado, et al. vs. Court of Appeals, 162 SCRA 75).
The questioned Orders themselves do not specify what material facts are in issue. (See
Sec. 4, Rule 34, Rules of Court).
To require a trial notwithstanding pertinent allegations of the pleadings and other
facts appearing on the record, would constitute a waste of time and an injustice to the

PNB whose rights to relief to which it is plainly entitled would be further delayed to
its prejudice.
In issuing the questioned Orders, We find the respondent Court to have acted in grave
abuse of discretion which justify holding null and void and setting aside the Orders
dated May 2 and July 4, 1990 of respondent Court, and that a summary judgment be
rendered forthwith in favor of the PNB against Noahs Ark Sugar Refinery, et al., as
prayed for in petitioners Motion for Summary Judgment. 2
On December 13, 1991, the Court of Appeals nullified and set aside the
orders of May 2 and July 4, 1990 of the Regional Trial Court and ordered the
trial court to render summary judgment in favor of the PNB. On June 18, 1992,
the trial court rendered judgment dismissing plaintiffs complaint against private
respondents for lack of cause of action and likewise dismissed private
respondents counterclaim against PNB and of the Third-Party Complaint and
the Third-Party Defendants Counterclaim. On September 4, 1992, the trial
court denied PNBs Motion for Reconsideration.
On June 9, 1992, the PNB filed an appeal from the RTC decision with the
Supreme Court, G.R. No. 107243, by way of a Petition for Review on
Certiorari under Rule 45 of the Rules of Court. This Court rendered judgment
on September 1, 1993, the dispositive portion of which reads:
WHEREFORE, the trial judges decision in Civil Case No. 90-53023, dated June 18,
1992, is reversed and set aside and a new one rendered conformably with the final
and executory decision of the Court of Appeals in CA-G.R SP. No. 25938, ordering
the private respondents Noahs Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go
and Wilson T. Go, jointly and severally:
(a) to deliver to the petitioner Philippine National Bank, the sugar stocks covered by the
Warehouse Receipts/ Quedans which are now in the latters possession as holder
for value and in due course; or alternatively, to pay (said) plaintiff actual damages in
the amount of P39.1 million, with legal interest thereon from the filing of the
complaint until full payment; and
(b) to pay plaintiff Philippine National Bank attorneys fees, litigation expenses and
judicial costs hereby fixed at the amount of One Hundred Fifty Thousand Pesos
(P150,000.00) as well as the costs.

SO ORDERED.3
On September 29, 1993, private respondents moved for reconsideration of
this decision. A Supplemental/Second Motion for Reconsideration with leave
of court was filed by private respondents on November 8, 1993. We denied
private respondents motion on January 10, 1994. .
Private respondents filed a Motion Seeking Clarification of the Decision,
dated September 1, 1993. We denied this motion in this manner:
It bears stressing that the relief granted in this Courts decision of September 1, 1993
is precisely that set out in the final and executory decision of the Court of Appeals in
CA-G.R. SP No. 25938, dated December 13, 1991, which was affirmed in toto by this
Court and which became unalterable upon becoming final and executory. 4
Private respondents thereupon filed before the trial court an Omnibus
Motion seeking among others the deferment of the proceedings until private
respondents are heard on their claim for warehousemans lien. On the other
hand, on August 22, 1994, the Philippine National Bank filed a Motion for the
Issuance of a Writ of Execution and an Opposition to the Omnibus Motion filed
by private respondents.
The trial court granted private respondents Omnibus Motion on December
20, 1994 and set reception of evidence on their claim for warehousemans lien.
The resolution of the PNBs Motion for Execution was ordered deferred until
the determination of private respondents claim.
On February 21, 1995, private respondents claim for lien was heard and
evidence was received in support thereof. The trial court thereafter gave both
parties five (5) days to file respective memoranda.
On February 28, 1995, the Philippine National Bank filed a Manifestation
with Urgent Motion to Nullify Court Proceedings. In adjudication thereof, the
trial court issued the following order on March 1, 1995:
WHEREFORE, this court hereby finds that there exists in favor of the defendants a
valid warehousemans lien under Section 27 of Republic Act 2137 and accordingly,
execution of the judgment is hereby ordered stayed and/ or precluded until the full

amount of defendants lien on the sugar stocks covered by the five (5) quedans subject
of this action shall have been satisfied conformably with the provisions of Section 31
of Republic Act 2137. 5
Consequently, the Philippine National Bank filed the herein petition to seek
the nullification of the above-assailed orders of respondent judge.
The PNB submits that:
I

PNBs RIGHT TO A WRIT OF EXECUTION IS SUPPORTED BY TWO FINAL AND

EXECUTORY DECISIONS: THE DECEMBER 13, 1991 COURT OF APPEALS
DECISION IN CA-G.R. SP. NO. 25938; AND, THE NOVEMBER 9, 1992 SUPREME
COURT DECISION IN G.R NO. 107243. RESPONDENT RTCS MINISTERIAL AND
MANDATORY DUTY IS TO ISSUE THE WRIT OF EXECUTION TO IMPLEMENT
THE DECRETAL PORTION OF SAID SUPREME COURT DECISION
II

RESPONDENT RTC IS WITHOUT JURISDICTION TO HEAR PRIVATE

RESPONDENTS OMNIBUS MOTION. THE CLAIMS SET FORTH IN SAID
MOTION: (1) WERE ALREADY REJECTED BY THE SUPREME COURT IN
ITS MARCH 9, 1994 RESOLUTION DENYING PRIVATE RESPONDENTS MOTION
FOR CLARIFICATION OF DECISION IN .G.R. NO. 107243; AND (2) ARE
BARRED FOREVER BY PRIVATE RESPONDENTS FAILURE TO INTERPOSE
THEM IN THEIR ANSWER, AND FAILURE TO APPEAL FROM THE JUNE 18,
1992 RTC DECISION IN CIVIL CASE NO. 90-52023
III

RESPONDENT RTCS ONLY JURISDICTION IS TO ISSUE THE WRIT TO

EXECUTE THE SUPREME COURT DECISION. THUS, PNB IS ENTITLED TO: (1)
A WRIT OF CERTIORARI TO ANNUL THE RTC RESOLUTION
DATED DECEMBER 20, 1994 AND THE ORDER DATED FEBRUARY 7, 1995 AND
ALL PROCEEDINGS TAKEN BY THE RTC THEREAFTER; (2) A WRIT OF
PROHIBITION TO PREVENT RESPONDENT RTC FROM FURTHER
PROCEEDING WITH CIVIL CASE NO. 90-53023 AND COMMITTING OTHER
ACTS VIOLATIVE OF THE SUPREME COURT DECISION IN G.R. NO. 107243;

AND (3) A WRIT OF MANDAMUS TO COMPEL RESPONDENT RTC TO ISSUE

THE WRIT TO EXECUTE THE SUPREME COURT JUDGMENT IN FAVOR OF
PNB
The issues presented before us in this petition revolve around the legality
of the questioned orders of respondent judge, issued as they were after we
had denied with finality private respondents contention that the PNB could not
compel them to deliver the stocks of sugar in their warehouse covered by the
endorsed quedans or pay the value of the said stocks of sugar.
Petitioners submission is on a technicality, that is, that private respondents
have lost their right to recover warehousemans lien on the sugar stocks
covered by the five (5) Warehouse Receipts for the reason that they failed to
set up said claim in their Answer before the trial court and that private
respondents did not appeal from the decision in this regard, dated June 18,
1992. Petitioner asseverates that the denial by this Court on March 9, 1994 of
the motion seeking clarification of our decision, dated September 1, 1993, has
foreclosed private respondents right to enforce their warehousemans lien for
storage fees and preservation expenses under the Warehouse Receipts Act.
On the other hand, private respondents maintain that they could not have
claimed the right to a warehouseman s lien in their Answer to the complaint
before the trial court as it would have been inconsistent with their stand that
they claim ownership of the stocks covered by the quedans since the checks
issued for payment thereof were dishonored. If they were still the owners, it
would have been absurd for them to ask payment for storage fees and
preservation expenses. They further contend that our resolution, dated March
9, 1994, denying their motion for clarification did not preclude their right to
claim their warehousemans lien under Sections 27 and 31 of Republic Act
2137, as our resolution merely affirmed and adopted the earlier decision,
dated December 13, 1991, of the Court of Appeals (6th Division) in CA-G.R.
SP. No. 25938 and did not make any finding on the matter of the
warehouseman s lien.
We find for private respondents on the foregoing issue and so the petition
necessarily must fail.

We have carefully examined our resolution, dated March 9, 1994, which

denied Noahs Arks motion for clarification of our decision, dated September 1,
1993, wherein we affirmed in full and adopted the Court of Appeals earlier
decision, dated December 13, 1991, in CA-G.R. SP. No. 25938. We are not
persuaded by the petitioners argument that our said resolution carried with it
the denial of the warehousemans lien over the sugar stocks covered by the
subject Warehouse Receipts. We have simply resolved and upheld in our
decision, dated September 1, 1993, the propriety of summary judgment which
was then assailed by private respondents. In effect, we ruled therein that,
considering the circumstances obtaining before the trial court, the issuance of
the Warehouse Receipts not being disputed by the private respondents, a
summary judgment in favor of PNB was proper. We in effect further affirmed
the finding that NoahsArk is a warehouseman which was obliged to deliver the
sugar stocks covered by the Warehouse Receipts pledged by Cresencia K.
Zoleta and Luis T. Ramos to the petitioner pursuant to the pertinent provisions
of Republic Act 2137.
In disposing of the private respondents motion for clarification, we could
not contemplate the matter of warehousemans lien because the issue to be
finally resolved then was the claim of private respondents for retaining
ownership of the stocks of sugar covered by the endorsed quedans. Stated
otherwise, there was no point in taking up the issue of warehousemans lien
since the matter of ownership was as yet being determined. Neither could
storage fees be due then while no one has been declared the owner of the
sugar stocks in question.
Of considerable relevance is the pertinent stipulation in the subject
Warehouse Receipts which provides for respondent Noahs Arks right to
impose and collect warehousemans lien:
Storage of the refined sugar quantities mentioned herein shall be free up to one (1)
week from the date of the quedans covering said sugar and thereafter, storage fees
shall be charged in accordance with the Refining Contract under which the refined
sugar covered by this Quedan was produced. 6
It is not disputed, therefore, that, under the subject Warehouse Receipts
provision, storage fees are chargeable.

Petitioner anchors its claim against private respondents on the five (5)
Warehouse Receipts issued by the latter to third-party defendants Rosa Ng Sy
of RNS Merchandising and Teresita Ng of St. Therese Merchandising, which
found their way to petitioner after they were negotiated to them by Luis T.
Ramos and Cresencia K. Zoleta for a loan of P39.1 Million. Accordingly,
petitioner PNB is legally bound to stand by the express terms and conditions
on the face of the Warehouse Receipts as to the payment of storage fees.
Even in the absence of such a provision, law and equity dictate the payment
of the warehouseman s lien pursuant to Sections 27 and 31 of the Warehouse
Receipts Law (R.A. 2137), to wit:
SECTION 27. What claims are included in the warehousemans lien. - Subject to the
provisions of section thirty, a warehouseman shall have lien on goods deposited or on
the proceeds thereof in his hands, for all lawful charges for storage and preservation
of the goods; also for all lawful claims for money advanced, interest, insurance,
transportation, labor, weighing coopering and other charges and expenses in relation
to such goods; also for all reasonable charges and expenses for notice, and
advertisement of sale, and for sale of the goods where default has been made in
satisfying the warehousemans lien.
xxx xxx xxx
SECTION 31. Warehouseman need not deliver until lien is satisfied. - A
warehouseman having a lien valid against the person demanding the goods may
refuse to deliver the goods to him until the lien is satisfied.
After being declared not the owner, but the warehouseman, by the Court
of Appeals on December 13, 1991 in CA-G.R. SP. No. 25938, the decision
having been affirmed by us onDecember 1, 1993, private respondents cannot
legally be deprived of their right to enforce their claim for warehousemans lien,
for reasonable storage fees and preservation expenses. Pursuant to Section
31 which we quote hereunder, the goods under storage may not be delivered
until said lien is satisfied.
SECTION 31. Warehouseman need not deliver until lien is satisfied. - A
warehouseman having a lien valid against the person demanding the goods may
refuse to deliver the goods to him until the lien is satisfied.

Considering that petitioner does not deny the existence, validity and
genuineness of the Warehouse Receipts on which it anchors its claim for
payment against private respondents, it cannot disclaim liability for the
payment of the storage fees stipulated therein. As contracts, the receipts must
be respected by authority of Article 1159 of the Civil Code, to wit:
ART. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
Petitioner is in estoppel in disclaiming liability for the payment of storage
fees due the private respondents as warehouseman while claiming to be
entitled to the sugar stocks covered by the subject Warehouse Receipts on
the basis of which it anchors its claim for payment or delivery of the sugar
stocks. The unconditional presentment of the receipts by the petitioner for
payment against private respondents on the strength of the provisions of the
Warehouse Receipts Law (R.A. 2137) carried with it the admission of the
existence and validity of the terms, conditions and stipulations written on the
face of the Warehouse Receipts, including the unqualified recognition of the
payment of warehousemans lien for storage fees and preservation expenses.
Petitioner may not now retrieve the sugar stocks without paying the lien due
private respondents as warehouseman.
In view of the foregoing, the rule may be simplified thus: While the PNB is
entitled to the stocks of sugar as the endorsee of the quedans, delivery to it
shall be effected only upon payment of the storage fees.
Imperative is the right of the warehouseman to demand payment of his
lien at this juncture, because, in accordance with Section 29 of the Warehouse
Receipts Law, the warehouseman loses his lien upon goods by surrendering
possession thereof. In other words, the lien may be lost where the
warehouseman surrenders the possession of the goods without requiring
payment of his lien, because a warehousemans lien is possessory in nature.
We, therefore, uphold and sustain the validity of the assailed orders of
public respondent, dated December 20, 1994 and March 1, 1995.

In fine, we fail to see any taint of abuse of discretion on the part of the
public respondent in issuing the questioned orders which recognized the
legitimate right of Noahs Ark, after being declared as warehouseman, to
recover storage fees before it would release to the PNB sugar stocks covered
by the five (5) Warehouse Receipts. Our resolution, dated March 9, 1994, did
not preclude private respondents unqualified right to establish its claim to
recover storage fees which is recognized under Republic Act No. 2137.
Neither did the Court of Appeals decision, dated December 13, 1991, restrict
such right.
Our Resolutions reference to the decision by the Court of Appeals,
dated December 13, 1991, in CA-G.R. SP. No. 25938, was intended to guide
the parties in the subsequent disposition of the case to its final end. We
certainly did not foreclose private respondents inherent right as
warehouseman to collect storage fees and preservation expenses as
stipulated n the face of each of the Warehouse Receipts and as provided for
in the Warehouse Receipts Law (R.A. 2137).
WHEREFORE, the petition should be, as it is, hereby dismissed for lack of
merit. The questioned orders issued by public respondent judge are affirmed.
Costs against the petitioner.
SO ORDERED.

[G.R. No. 129918. July 9, 1998]

PHILIPPINE NATIONAL BANK, petitioner, vs. HON. MARCELINO L.

SAYO, JR., in his capacity as Presiding Judge of the Regional
Trial Court of Manila (Branch 45), NOAHS ARK SUGAR
REFINERY, ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T.
GO, respondents.
DECISION
DAVIDE, JR., J.:

In this special civil action for certiorari, actually the third dispute between the same
private parties to have reached this Court, [1] petitioner asks us to annul the orders [2] of 15
April 1997 and 14 July 1997 issued in Civil Case No. 90-53023 by the Regional Trial
Court, Manila, Branch 45. The first order [3] granted private respondents motion for
execution to satisfy their warehousemans lien against petitioner, while the second
order[4] denied, with finality, petitioners motion for reconsideration of the first order and
urgent motion to lift garnishment, and private respondents motion for partial
reconsideration.
The factual antecedents until the commencement of G.R. No. 119231 were
summarized in our decision therein, as follows:

In accordance with Act No. 2137, the Warehouse Receipts Law, Noahs Ark
Sugar Refinery issued on several dates, the following Warehouse Receipts
(Quedans): (a) March 1, 1989, Receipt No. 18062, covering sugar deposited
by Rosa Sy; (b) March 7, 1989, Receipt No. 18080, covering sugar deposited
by RNS Merchandising (Rosa Ng Sy); (c) March 21, 1989, Receipt No. 18081,
covering sugar deposited by St. Therese Merchandising; (d) March 31, 1989,
Receipt No. 18086, covering sugar deposited by St. Therese Merchandising;
and (e) April 1, 1989, Receipt No. 18087, covering sugar deposited by RNS
Merchandising. The receipts are substantially in the form, and contains the
terms, prescribed for negotiable warehouse receipts by Section 2 of the law.
Subsequently, Warehouse Receipts Nos. 18080 and 18081 were negotiated
and endorsed to Luis T. Ramos, and Receipts Nos. 18086, 18087 and 18062
were negotiated and endorsed to Cresencia K. Zoleta. Ramos and Zoleta then
used the quedans as security for two loan agreements one for P15.6 million
and the other for P23.5 million obtained by them from the Philippine National
Bank. The aforementioned quedans were endorsed by them to the Philippine
National Bank.
Luis T. Ramos and Cresencia K. Zoleta failed to pay their loans upon maturity
on January 9, 1990. Consequently, on March 16, 1990, the Philippine National
Bank wrote to Noahs Ark Sugar Refinery demanding delivery of the sugar
stocks covered by the quedans endorsed to it by Zoleta and Ramos. Noahs
Ark Sugar Refinery refused to comply with the demand alleging ownership
thereof, for which reason the Philippine National Bank filed with the Regional
Trial Court of Manila a verified complaint for Specific Performance with
Damages and Application for Writ of Attachment against Noahs Ark Sugar
Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, the last three
being identified as the sole proprietor, managing partner, and Executive Vice
President of Noahs Ark, respectively.

Respondent Judge Benito C. Se, Jr., [to] whose sala the case was raffled,
denied the Application for Preliminary Attachment. Reconsideration therefor
was likewise denied.
Noahs Ark and its co-defendants filed an Answer with Counterclaim and ThirdParty Complaint in which they claimed that they [were] the owners of the
subject quedans and the sugar represented therein, averring as they did that:
9. *** In an agreement dated April 1, 1989, defendants agreed to sell to Rosa
Ng Sy of RNS Merchandising and Teresita Ng of St. Therese Merchandising
the total volume of sugar indicated in the quedans stored at Noahs Ark Sugar
Refinery for a total consideration of P63,000,000.00, *** The corresponding
payments in the form of checks issued by the vendees in favor of defendants
were subsequently dishonored by the drawee banks by reason of payment
stopped and drawn against insufficient funds, *** Upon proper notification to
said vendees and plaintiff in due course, defendants refused to deliver to
vendees therein the quantity of sugar covered by the subject quedans.
10. *** Considering that the vendees and first endorsers of subject quedans
did not acquire ownership thereof, the subsequent endorsers and plaintiff itself
did not acquire a better right of ownership than the original vendees/first
endorsers.
The Answer incorporated a Third-Party Complaint by Alberto T. Looyuko,
Jimmy T. Go and Wilson T. Go, doing business under the trade name and
style Noahs Ark Sugar Refinery against Rosa Ng Sy and Teresita Ng, praying
that the latter be ordered to deliver or return to them the quedans (previously
endorsed to PNB and the subject of the suit) and pay damages and litigation
expenses.
The Answer of Rosa Ng Sy and Teresita Ng, dated September 6, 1990, one of
avoidance, is essentially to the effect that the transaction between them, on
the one hand, and Jimmy T. Go, on the other, concerning the quedans and the
sugar stocks covered by them was merely a simulated one being part of the
latters complex banking schemes and financial maneuvers, and thus, they are
not answerable in damages to him.
On January 31, 1991, the Philippine National Bank filed a Motion for Summary
Judgment in favor of the plaintiff as against the defendants for the reliefs
prayed for in the complaint.

On May 2, 1991, the Regional Trial Court issued an order denying the Motion
for Summary Judgment. Thereupon, the Philippine National Bank filed a
Petition for Certiorari with the Court of Appeals, docketed as CA-G.R. SP No.
25938 on December 13, 1991.
Pertinent portions of the decision of the Court of Appeals read:
In issuing the questioned Orders, the respondent Court ruled that questions of
law should be resolved after and not before, the questions of fact are properly
litigated. A scrutiny of defendants affirmative defenses does not show material
questions of fact as to the alleged nonpayment of purchase price by the
vendees/first endorsers, and which nonpayment is not disputed by PNB as it
does not materially affect PNBs title to the sugar stocks as holder of the
negotiable quedans.
What is determinative of the propriety of summary judgment is not the
existence of conflicting claims from prior parties but whether from an
examination of the pleadings, depositions, admissions and documents on file,
the defenses as to the main issue do not tender material questions of fact
(see Garcia vs. Court of Appeals, 167 SCRA 815) or the issues thus tendered
are in fact sham, fictitious, contrived, set up in bad faith or so unsubstantial as
not to constitute genuine issues for trial. (See Vergara vs. Suelto, et al., 156
SCRA 753; Mercado, et al. vs. Court of Appeals, 162 SCRA 75). [sic] The
questioned Orders themselves do not specify what material facts are in issue.
(See Sec. 4, Rule 34, Rules of Court).
To require a trial notwithstanding pertinent allegations of the pleadings and
other facts appearing on the record, would constitute a waste of time and an
injustice to the PNB whose rights to relief to which it is plainly entitled would
be further delayed to its prejudice.
In issuing the questioned Orders, We find the respondent Court to have acted
in grave abuse of discretion which justify holding null and void and setting
aside the Orders dated May 2 and July 4, 1990 of respondent Court, and that
a summary judgment be rendered forthwith in favor of the PNB against Noahs
Ark Sugar Refinery, et al., as prayed for in petitioners Motion for Summary
Judgment.
On December 13, 1991, the Court of Appeals nullified and set aside the
orders of May 2 and July 4, 1990 of the Regional Trial Court and ordered the
trial court to render summary judgment in favor of the PNB. On June 18, 1992,
the trial court rendered judgment dismissing plaintiffs complaint against private

respondents for lack of cause of action and likewise dismissed private

respondents counterclaim against PNB and of the Third-Party Complaint and
the Third-Party Defendants Counterclaim. On September 4, 1992, the trial
court denied PNBs Motion for Reconsideration.
On June 9, 1992, the PNB filed an appeal from the RTC decision with the
Supreme Court, G.R. No. 107243, by way of a Petition for Review
on Certiorari under Rule 45 of the Rules of Court. This Court rendered
judgment on September 1, 1993, the dispositive portion of which reads:
WHEREFORE, the trial judges decision in Civil Case No. 90-53023, dated
June 18, 1992, is reversed and set aside and a new one rendered
conformably with the final and executory decision of the Court of Appeals in
CA-G.R. SP No. 25938, ordering the private respondents Noahs Ark Sugar
Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, jointly and
severally:
(a) to deliver to the petitioner Philippine National Bank, the sugar stocks
covered by the Warehouse Receipts/Quedans which are now in the latters
possession as holder for value and in due course; or alternatively, to pay
(said) plaintiff actual damages in the amount of P39.1 million, with legal
interest thereon from the filing of the complaint until full payment; and
(b) to pay plaintiff Philippine National Bank attorneys fees, litigation expenses
and judicial costs hereby fixed at the amount of One Hundred Fifty Thousand
Pesos (P150,000.00) as well as the costs.
SO ORDERED.
On September 29, 1993, private respondents moved for reconsideration of
this decision. A Supplemental/Second Motion for Reconsideration with leave
of court was filed by private respondents on November 8, 1993. We denied
private respondents motion on January 10, 1994.
Private respondents filed a Motion Seeking Clarification of the Decision, dated
September 1, 1993. We denied this motion in this manner:
It bears stressing that the relief granted in this Courts decision of September
1, 1993 is precisely that set out in the final and executory decision of the Court
of Appeals in CA-G.R. SP No. 25938, dated December 13, 1991, which was
affirmed in toto by this Court and which became unalterable upon becoming
final and executory.

Private respondents thereupon filed before the trial court an Omnibus Motion
seeking among others the deferment of the proceedings until private
respondents [were] heard on their claim for warehousemans lien. On the other
hand, on August 22, 1994, the Philippine National Bank filed a Motion for the
Issuance of a Writ of Execution and an Opposition to the Omnibus Motion filed
by private respondents.
The trial court granted private respondents Omnibus Motion on December 20,
1994 and set reception of evidence on their claim for warehousemans
lien. The resolution of the PNBs Motion for Execution was ordered deferred
until the determination of private respondents claim.
On February 21, 1995, private respondents claim for lien was heard and
evidence was received in support thereof. The trial court thereafter gave both
parties five (5) days to file respective memoranda.
On February 28, 1995, the Philippine National Bank filed a Manifestation with
Urgent Motion to Nullify Court Proceedings. In adjudication thereof, the trial
court issued the following order on March 1, 1995:
WHEREFORE, this court hereby finds that there exists in favor of the defendants a valid
warehousemans lien under Section 27 of Republic Act 2137 and accordingly, execution
of the judgment is hereby ordered stayed and/or precluded until the full amount of
defendants lien on the sugar stocks covered by the five (5) quedans subject of this
action shall have been satisfied conformably with the provisions of Section 31 of
Republic Act 2137.[5]
Unsatisfied with the trial courts order of 1 March 1995, herein petitioner filed with us
G.R. No. 119231, contending:
I

PNBS RIGHT TO A WRIT OF EXECUTION IS SUPPORTED BY TWO FINAL AND

EXECUTORY DECISIONS: THE DECEMBER 13, 1991 COURT OF APPEALS [sic]
DECISION IN CA-G.R. SP NO. 25938; AND, THE NOVEMBER 9, 1992 SUPREME
COURT DECISION IN G.R. NO. 107243. RESPONDENT RTCS MINISTERIAL AND
MANDATORY DUTY IS TO ISSUE THE WRIT OF EXECUTION TO IMPLEMENT
THE DECRETAL PORTION OF SAID SUPREME COURT DECISION.
II

RESPONDENT RTC IS WITHOUT JURISDICTION TO HEAR PRIVATE

RESPONDENTS OMNIBUS MOTION. THE CLAIMS SET FORTH IN SAID
MOTION: (1) WERE ALREADY REJECTED BY THE SUPREME COURT IN ITS
MARCH 9, 1994 RESOLUTION DENYING PRIVATE RESPONDENTS MOTION
FOR CLARIFICATION OF DECISION IN G.R. NO. 107243; AND (2) ARE BARRED
FOREVER BY PRIVATE RESPONDENTS FAILURE TO INTERPOSE THEM IN

THEIR ANSWER, AND FAILURE TO APPEAL FROM THE JUNE 18, 1992
DECISION IN CIVIL CASE NO. 90-52023.
III

RESPONDENT RTCS ONLY JURISDICTION IS TO ISSUE THE WRIT TO

EXECUTE THE SUPREME COURT DECISION. THUS, PNB IS ENTITLED TO: (1)
A WRIT OF CERTIORARI TO ANNUL THE RTC RESOLUTION DATED
DECEMBER 20, 1994 AND THE ORDER DATED FEBRUARY 7, 1995 AND ALL
PROCEEDINGS TAKEN BY THE RTC THEREAFTER; (2) A WRIT OF
PROHIBITION TO PREVENT RESPONDENT RTC FROM FURTHER
PROCEEDING WITH CIVIL CASE NO. 90-53023 AND COMMITTING OTHER
ACTS VIOLATIVE OF THE SUPREME COURT DECISION IN G.R. NO. 107243;
AND (3) A WRIT OF MANDAMUS TO COMPEL RESPONDENT RTC TO ISSUE
THE WRIT TO EXECUTE THE SUPREME COURT JUDGMENT IN FAVOR OF
PNB.

In our decision of 18 April 1996 in G.R. No. 119231, we held against herein
petitioner as to these issues and concluded:

In view of the foregoing, the rule may be simplified thus: While the PNB is
entitled to the stocks of sugar as the endorsee of the quedans, delivery to it
shall be effected only upon payment of the storage fees.
Imperative is the right of the warehouseman to demand payment of his lien at
this juncture, because, in accordance with Section 29 of the Warehouse
Receipts Law, the warehouseman loses his lien upon goods by surrendering
possession thereof. In other words, the lien may be lost where the
warehouseman surrenders the possession of the goods without requiring
payment of his lien, because a warehousemans lien is possessory in nature.
We, therefore, uphold and sustain the validity of the assailed orders of public
respondent, dated December 20, 1994 and March 1, 1995.
In fine, we fail to see any taint of abuse of discretion on the part of the public
respondent in issuing the questioned orders which recognized the legitimate
right of Noahs Ark, after being declared as warehouseman, to recover storage
fees before it would release to the PNB sugar stocks covered by the five (5)
Warehouse Receipts. Our resolution, dated March 9, 1994, did not preclude
private respondents unqualified right to establish its claim to recover storage
fees which is recognized under Republic Act No. 2137. Neither did the Court
of Appeals decision, dated December 13, 1991, restrict such right.
Our Resolutions reference to the decision by the Court of Appeals, dated December 13,
1991, in CA-G.R. SP No. 25938, was intended to guide the parties in the subsequent
disposition of the case to its final end. We certainly did not foreclose private
respondents inherent right as warehouseman to collect storage fees and preservation

expenses as stipulated on the face of each of the Warehouse Receipts and as provided
for in the Warehouse Receipts Law (R.A. 2137).[6]
Petitioners motion to reconsider the decision in G.R. No. 119231 was denied.
After the decision in G.R. No. 119231 became final and executory, various incidents
took place before the trial court in Civil Case No. 90-53023. The petition in this case
summarizes these as follows:

3.24 Pursuant to the abovementioned Supreme Court Decision, private

respondents filed a Motion for Execution of Defendants Lien as
Warehouseman dated 27 November 1996. A photocopy of said Motion for
Execution is attached hereto as Annex I.
3.25 PNB opposed said Motion on the following grounds:
(a) The lien claimed by Noahs Ark in the unbelievable amount
of P734,341,595.06 is illusory; and
(b) There is no legal basis for execution of defendants lien as
warehouseman unless and until PNB compels the delivery
of the sugar stocks.
3.26 In their Reply to Opposition dated 18 January 1997, private respondents
pointed out that a lien existed in their favor, as held by the Supreme Court. In
its Rejoinder dated 7 February 1997, PNB countered private respondents
argument, pointing out that the dispositive portion of the court a quos Order
dated 1 March 1995 failed to state the amount for which execution may be
granted and, thus, the same could not be the subject of execution; and (b)
private respondents should instead file a separate action to prove the amount
of its claim as warehouseman.
3.27 The court a quo, this time presided by herein public respondent, Hon.
Marcelino L. Sayo Jr., granted private respondents Motion for Execution. In its
questioned Order dated 15 April 1997 (Annex A), the court a quo ruled in this
wise:
Accordingly, the computation of accrued storage fees and preservation
charges presented in evidence by the defendants, in the amount
of P734,341,595.06 as of January 31, 1995 for the 86,356.41 50 kg. bags of
sugar, being in order and with sufficient basis, the same should be
granted. This Court consequently rejects PNBs claim of no sugar no lien,
since it is undisputed that the amount of the accrued storage fees is

substantially in excess of the alternative award of P39.1 Million in favor of

PNB, including legal interest and P150,000.00 in attorneys fees, which PNB is
however entitled to be credited x x x.
xxxxxxxxx
WHEREFORE, premises considered and finding merit in the defendants
motion for execution of their claim for lien as warehouseman, the same is
hereby GRANTED. Accordingly, let a writ of execution issue for the amount
of P662,548,611.50, in accordance with the above disposition.
SO ORDERED. (Emphasis supplied.)
3.28 On 23 April 1997, PNB was immediately served with a Writ of Execution
for the amount of P662,548,611.50 in spite of the fact that it had not yet been
served with the Order of the court a quo dated 15 April 1997. PNB thus filed
an Urgent Motion dated 23 April 1997 seeking the deferment of the
enforcement of the Writ of Execution. A photocopy of the Writ of Execution is
attached hereto as Annex J.
3.29 Nevertheless, the Sheriff levied on execution several properties of
PNB. Firstly, a Notice of Levy dated 24 April 1997 on a parcel of land with an
area of Ninety-Nine Thousand Nine Hundred Ninety-Nine (99,999) square
meters, covered by Transfer Certificate of Title No. 23205 in the name of PNB,
was served upon the Register of Deeds of Pasay City. Secondly, a Notice of
Garnishment dated 23 April 1997 on fund deposits of PNB was served upon
the Bangko Sentral ng Pilipinas. Photocopies of the Notice of Levy and the
Notice of Garnishment are attached hereto as Annexes K and L, respectively.
3.30 On 28 April 1997, petitioner filed a Motion for Reconsideration with
Urgent Prayer for Quashal of Writ of Execution dated 15 April 1997.
Petitioners Motion was based on the following grounds:
(1) Noahs Ark is not entitled to a warehousemans lien in the
humongous amount of P734,341,595.06 because the same has
been waived for not having been raised earlier as either
counterclaim or defense against PNB;
(2) Assuming said lien has not been waived, the same, not being
registered, is already barred by prescription and/or laches;

(3) Assuming further that said lien has not been waived nor barred, still
there was no complaint ever filed in court to effectively commence
this entirely new cause of action;
(4) There is no evidence on record which would support and sustain
the claim of P734,341,595.06 which is excessive, oppressive and
unconscionable;
(5) Said claim if executed would constitute unjust enrichment to the
serious prejudice of PNB and indirectly the Philippine Government,
who innocently acquired the sugar quedans through assignment of
credit;
(6) In all respects, the decisions of both the Supreme Court and of the
former Presiding Judge of the trial court do not contain a specific
determination and/or computation of warehousemans lien, thus
requiring first and foremost a fair hearing of PNBs evidence, to
include the true and standard industry rates on sugar storage fees,
which if computed at such standard rate of thirty centavos per
kilogram per month, shall result in the sum of about Three Hundred
Thousand Pesos only.
3.31 In its Motion for Reconsideration, petitioner prayed for the following
reliefs:
1. PNB be allowed in the meantime to exercise its basic right to present
evidence in order to prove the above allegations especially the true and
reasonable storage fees which may be deducted from PNBs judgment award
of P39.1 Million, which storage fees if computed correctly in accordance with
standard sugar industry rates, would amount to only P300 Thousand Pesos,
without however waiving or abandoning its (PNBs) legal positions/contentions
herein abovementioned.
2. The Order dated April 15, 1997 granting the Motion for Execution by
defendant Noahs Ark be set aside.
3. The execution proceedings already commenced by said sheriffs be nullified
at whatever stage of accomplishment.
A photocopy of petitioners Motion for Reconsideration with Urgent Prayer for
Quashal of Writ of Execution is attached hereto and made integral part hereof
as Annex M.

3.32 Private respondents filed an Opposition with Motion for Partial

Reconsideration dated 8 May 1997. Still discontented with the excessive and
staggering amount awarded to them by the court a quo, private respondents
Motion for Partial Reconsideration sought additional and continuing storage
fees over and above what the court a quo had already unjustly awarded. A
photocopy of private respondents Opposition with Motion for Partial
Reconsideration dated 8 May 1997 is attached hereto as Annex N.
3.32.1 Private respondents prayed for the further amount of P227,375,472.00
in storage fees from 1 February 1995 until 15 April 1997, the date of the
questioned Order granting their Motion for Execution.
3.32.2 In the same manner, private respondents prayed for a continuing
amount of P345,424.00 as daily storage fees after 15 April 1997 until the total
amount of the storage fees is satisfied.
3.33 On 19 May 1997, PNB filed its Reply with Opposition (To Defendants
Opposition with Partial Motion for Reconsideration), containing therein the
following motions: (i) Supplemental Motion for Reconsideration; (ii) Motion to
Strike out the Testimony of Noahs Arks Accountant Last February 21, 1995;
and (iii) Motion for the Issuance of a Writ of Execution in favor of PNB.In
support of its pleading, petitioner raised the following:
(1) Private respondents failed to pay the appropriate docket fees either
for its principal claim or for its additional claim, as said claims for
warehousemans lien were not at all mentioned in their answer to
petitioners Complaint;
(2) The amount awarded by the court a quo was grossly and manifestly
unreasonable, excessive, and oppressive;
(3) It is the dispositive portion of the decision which shall be controlling
in any execution proceeding. If no specific award is stated in the
dispositive portion, a writ of execution supplying an amount not
included in the dispositive portion of the decision being executed is
null and void;
(4) Private respondents failed to prove the existence of the sugar
stocks in Noahs Arks warehouses. Thus, private respondents
claims are mere paper liens which cannot be the subject of
execution;

(5) The attendant circumstances, particularly Judge Ses Order of 1

March 1995 onwards, were tainted with fraud and absence of due
process, as PNB was not given a fair opportunity to present its
evidence on the matter of the warehousemans lien. Thus, all
orders prescinding thereform, including the questioned Order
dated 15 April 1997, must perforce be set aside and the execution
proceedings against PNB be permanently stayed.
3.34 On 6 May 1997, petitioner also filed an Urgent Motion to Lift Garnishment
of PNB Funds with Bangko Sentral ng Pilipinas.
3.35 On 14 July 1997, respondent Judge issued the second Order (Annex B),
the questioned part of the dispositive portion of which states:
WHEREFORE, premises considered, the plaintiff Philippine National Banks
subject Motion for Reconsideration With Urgent Prayer for Quashal of Writ of
Execution dated April 28, 1997 and undated Urgent Motion to Lift
Garnishment of PNB Funds With Bangko Sentral ng Pilipinas filed on May 6,
1997, together with all its related Motions are all DENIED with finality for lack
of merit.
xxxxxxxxx
The Order of this Court dated April 15, 1997, the final Writ of Execution
likewise dated April 15, 1997 and the corresponding Garnishment all stand
firm.
SO ORDERED.[7]
Aggrieved thereby, petitioners filed this petition, alleging as grounds therefor, the
following:
A. THE COURT A QUO ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION
OR WITH GRAVE ABUSE OF DISCRETION WHEN IT ISSUED A WRIT OF
EXECUTION IN FAVOR OF DEFENDANTS FOR THE AMOUNT OF P734,341,595.06.

4.1 The court a quo had no authority to issue a writ of execution in favor of
private respondents as there was no final and executory judgment ripe for
execution.
4.2 Public respondent judge patently exceeded the scope of his authority
in making a determination of the amount of storage fees due private
respondents in a mere interlocutory order resolving private respondents
Motion for Execution.

4.3 The manner in which the court a quo awarded storage fees in favor of
private respondents and ordered the execution of said award was arbitrary
and capricious, depriving petitioner of its inherent substantive and
procedural rights.
B. EVEN ASSUMING ARGUENDO THAT THE COURT A QUO HAD AUTHORITY TO
GRANT PRIVATE RESPONDENTS MOTION FOR EXECUTION, THE COURT A
QUO ACTED WITH GRAVE ABUSE OF DISCRETION IN AWARDING THE HIGHLY
UNREASONABLE,
UNCONSCIONABLE,
AND
EXCESSIVE
AMOUNT
OF P734,341,595.06 IN FAVOR OF PRIVATE RESPONDENTS.

4.4 There is no basis for the court a quos award of P734,341,595.06

representing private respondents alleged warehousemans lien.
4.5 PNB has sufficient evidence to show that the astronomical amount
claimed by private respondents is very much in excess of the industry rate
for storage fees and preservation expenses.
C. PUBLIC RESPONDENT JUDGES GRAVE ABUSE OF DISCRETION BECOMES
MORE PATENT AFTER A CLOSE PERUSAL OF THE QUESTIONED ORDER DATED
14 JULY 1997.

4.6 The court a quo resolved a significant and consequential matter

entirely relying on documents submitted by private respondents totally
disregarding clearly contrary evidence submitted by PNB.
4.7 The court a quo misquoted and misinterpreted the Supreme Court
Decision dated 18 April 1997.
D. THE COURT A QUO ACTED WITH GRAVE ABUSE OF DISCRETION IN NOT
HOLDING THAT PRIVATE RESPONDENTS HAVE LONG WAIVED THEIR RIGHT TO
CLAIM ANY WAREHOUSEMANS LIEN.

4.8 Private respondents raised the matter of their entitlement to a

warehousemans lien for storage fees and preservation expenses for the
first time only during the execution proceedings of the Decision in favor of
PNB.
4.9 Private respondents claim for warehousemans lien is in the nature of a
compulsory counterclaim which should have been included in private
respondents answer to the Complaint.Private respondents failed to
include said claim in their answer either as a counterclaim or as an
alternative defense to PNBs Complaint.

4.10 Private respondents claim is likewise lost by virtue of a specific

provision of the Warehouse Receipts Law and barred by prescription and
laches.
E. PUBLIC RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION
IN REFUSING TO LIFT THE ORDER OF GARNISHMENT OF THE FUNDS OF PNB
WITH THE BANGKO SENTRAL NG PILIPINAS.

4.11 Public respondent judge failed to consider PNBs arguments in support of its
Urgent Motion to Lift Garnishment.[8]
In arguing its cause, petitioner explained that this Courts decision in G.R. No.
119231 merely affirmed the trial courts resolutions of 20 December 1994 and 1 March
1995. The earlier resolution set private respondents reception of evidence for hearing to
prove their warehousemans lien and, pending determination thereof, deferred
petitioners motion for execution of the summary judgment rendered in petitioners favor
in G.R. No. 107243. The subsequent resolution recognized the existence of a valid
warehousemans lien without, however, specifying the amount, and required its full
satisfaction by petitioner prior to the execution of the judgment in G.R. No. 107243.
Under said circumstances, petitioner reiterated that neither this Courts decision nor
the trial courts resolutions specified any amount for the warehousemans lien, either in
the bodies or dispositive portions thereof. Petitioner therefore questioned the propriety
of the computation of the warehousemans lien in the assailed order of 15 April 1997.
Petitioner further characterized as highly irregular the trial courts final determination
of such lien in a mere interlocutory order without explanation, as such should or could
have been done only by way of a judgment on the merits. Petitioner likewise reasoned
that a writ of execution was proper only to implement a final and executory decision,
which was not present in the instant case. Petitioner then cited the cases of Edward v.
Arce, where we ruled that the only portion of the decision which could be the subject of
execution was that decreed in the dispositive part, [9] and Ex-Bataan Veterans Security
Agency, Inc. v. National Labor Relations Commission, [10] where we held that a writ of
execution should conform to the dispositive portion to be executed, otherwise, execution
becomes void if in excess of and beyond the original judgment.
Petitioner likewise emphasized that the hearing of 21 February 1995 was marred by
procedural infirmities, narrating that the trial court proceeded with the hearing
notwithstanding the urgent motion for postponement of petitioners counsel of record,
who attended a previously scheduled hearing in Pampanga. However, petitioners
lawyer-representative was sent to confirm the allegations in said motion. To petitioners
dismay, instead of granting a postponement, the trial court allowed the continuance of
the hearing on the basis that there was nothing sensitive about [the presentation of
private respondents evidence].[11] At the same hearing, the trial court admitted all the
documentary evidence offered by private respondents and ordered the filing of the
parties respective memoranda. Hence, petitioner was virtually deprived of its right to
cross-examine the witness, comment on or object to the offer of evidence and present

countervailing evidence. In fact, to date, petitioners urgent motion to nullify the court
proceedings remains unresolved.
To stress its point, petitioner underscores the conflicting views of Judge Benito C.
Se, Jr., who heard and tried almost the entire proceedings, and his successor, Judge
Marcelino L. Sayo, Jr., who issued the assailed orders. In the resolution [12] of 1 March
1995, Judge Se found private respondents claim for warehouse lien in the amount
of P734,341,595.06 unacceptable, thus:

In connection with [private respondents] claim for payment of warehousing

fees and expenses, this Court cannot accept [private respondents] pretense
that they are entitled to storage fees and preservation expenses in the amount
of P734,341,595.06 as shown in their Exhibits 1 to 11. There would, however,
appear to be legal basis for their claim for fees and expenses covered during
the period from the time of the issuance of the five (5) quedans until demand
for their delivery was made by [petitioner] prior to the institution of the present
action. [Petitioner] should not be made to shoulder the warehousing fees and
expenses after the demand was made. xxx[13]
Since it was deprived of a fair opportunity to present its evidence on the
warehousemans lien due Noahs Ark, petitioner submitted the following documents: (1)
an affidavit of petitioners credit investigator [14] and his report[15] indicating that Noahs Ark
only had 1,490 50kg. bags, and not 86,356.41 50kg. bags, of sugar in its warehouse; (2)
Noahs Arks reports[16] for 1990-94 showing that it did not have sufficient sugar stock to
cover the quantity specified in the subject quedans; (3) Circular Letter No. 18 (s. 198788)[17] of the Sugar Regulatory Administration requiring sugar mill companies to submit
reports at weeks end to prevent the issuance of warehouse receipts not covered by
actual inventory; and (4) an affidavit of petitioners assistant vice president [18] alleging that
Noahs Arks daily storage fee of P4/bag exceeded the prevailing industry rate.
Petitioner, moreover, laid stress on the fact that in the questioned order of 14 July
1997, the trial court relied solely on the Annual Synopsis of Production & Performance
Date/Annual Compendium of Performance by Philippine Sugar Refineries from 1989 to
1994, in disregard of Noahs Arks certified reports that it did not have sufficient sugar
stock to cover the quantity specified in the subject quedans. Between the two, petitioner
urged, the latter should have been accorded greater evidentiary weight.
Petitioner then argued that the trial courts second assailed order of 14 July 1997
misinterpreted our decision in G.R. No. 119231 by ruling that the Refining Contract
under which the subject sugar stock was produced bound the parties. According to
petitioner, the Refining Contract never existed, it having been denied by Rosa Ng Sy;
thus, the trial court could not have properly based its computation of the
warehousemans lien on the Refining Contract. Petitioner maintained that a separate
trial was necessary to settle the issue of the warehousemans lien due Noahs Ark, if at
all proper.

Petitioner further asserted that Noahs Ark could no longer recover its lien, having
raised the issue for the first time only during the execution proceedings of this Courts
decision in G.R. No. 107243. As said claim was a separate cause of action which
should have been raised in private respondents answer with counterclaim to petitioners
complaint, private respondents failure to raise said claim should have been deemed a
waiver thereof.
Petitioner likewise insisted that under Section 29 [19] of the Warehouse Receipts Law,
private respondents were barred from claiming the warehousemans lien due to their
refusal to deliver the goods upon petitioners demand. Petitioner further raised that
private respondents failed to timely assert their claim within the five-year prescriptive
period, citing Article 1149[20] of the New Civil Code.
Finally, petitioner questioned the trial courts refusal to lift the garnishment order
considering that the levy on its real property, with an estimated market value
of P6,000,000,000, was sufficient to satisfy the judgment award; and contended that the
garnishment was contrary to Section 103 [21] of the Bangko Sentral ng Pilipinas Law
(Republic Act No. 7653).
On 8 August 1997, we required respondents to comment on the petition and issued
a temporary restraining order enjoining the trial court from implementing its orders of 15
April and 14 July 1997.
In their comment, private respondents first sought the lifting of the temporary
restraining order, claiming that petitioner could no longer seek a stay of the execution of
this Courts decision in G.R. No. 119231 which had become final and executory; and the
petition raised factual issues which had long been resolved in the decision in G.R. No.
119231, thereby rendering the instant petition moot and academic. They underscored
that CA-G.R. No. SP No. 25938, G.R. No. 107243 and G.R. No. 119231 all sustained
their claim for a warehousemans lien, while the storage fees stipulated in the Refining
Contract had the approval of the Sugar Regulatory Authority. Likewise, under the
Warehouse Receipts Law, full payment of their lien was a pre-requisite to their
obligation to release and deliver the sugar stock to petitioner.
Anent the trial courts jurisdiction to determine the warehousemans lien, private
respondents maintained that such had already been established. Accordingly, the
resolution of 1 March 1995 declared that they were entitled to a warehousemans lien,
for which reason, the execution of the judgment in favor of petitioner was stayed until
the latters full payment of the lien. This resolution was then affirmed by this Court in our
decision in G.R. No. 119231. Even assuming the trial court erred, the error could only
have been in the wisdom of its findings and not of jurisdiction, in which case, the proper
remedy of petitioner should have been an appeal and certiorari did not lie.
Private respondents also raised the issue of res judicata as a bar to the instant
petition, i.e., the March resolution was already final and unappealable, having been
resolved in G.R. No. 119231, and the orders assailed here were issued merely to
implement said resolution.
Private respondents then debunked the claim that petitioner was denied due
process. In that February hearing, petitioner was represented by counsel who failed to

object to the presentation and offer of their evidence consisting of the five quedans,
Refining Contracts with petitioner and other quedan holders, and the computation
resulting in the amount ofP734,341,595.06, among other documents. Private
respondents even attached a copy of the transcript of stenographic notes [22] to their
comment. In refuting petitioners argument that no writ of execution could issue in
absence of a specific amount in the dispositive portion of this Courts decision in G.R.
No. 119231, private respondents argued that any ambiguity in the decision could be
resolved by referring to the entire record of the case, [23] even after the decision had
become final.
Private respondents next alleged that the award of P734,341,595.06 to satisfy their
warehousemans lien was in accordance with the stipulations provided in
the quedans and the corresponding Refining Contracts, and that the validity of said
documents had been recognized by this Court in our decision in G.R. No. 119231.
Private respondents then questioned petitioners failure to oppose or rebut the evidence
they presented and bewailed its belated attempts to present contrary evidence through
its pleadings. Nonetheless, said evidence was even considered by the trial court when
petitioner sought a reconsideration of the first assailed order of 15 April 1997, thus
further precluding any claim of denial of due process.
Private respondents next pointed to the fact that they consistently claimed that they
had not been paid for storing the sugar stock, which prompted them to file criminal
charges of estafa and violation of Batas Pambansa (BP) Blg. 22 against Rosa Ng Sy
and Teresita Ng. In fact, Sy was eventually convicted of two counts of violation of BP
Blg. 22. Private respondents, moreover, incurred, and continue to incur, expenses for
the storage and preservation of the sugar stock; and denied having waived their
warehousemans lien, an issue already raised and rejected by this Court in G.R. No.
119231.
Private respondents further claimed that the garnishment order was proper, only
that it was rendered ineffective. In a letter[24] received by the sheriff from the Bangko
Sentral ng Pilipinas, it was stated that the garnishment could not be enforced since
petitioners deposits with the Bangko Sentral ng Pilipinas consisted solely of legal
reserves which were exempt from garnishment. Petitioner therefore suffered no damage
from said garnishment. Private respondents likewise deemed immaterial petitioners
argument that the writ of execution issued against its real property in Pasay City was
sufficient, considering its prevailing market value of P6,000,000,000 was in excess of
the warehousemans lien; and invoked Rule 39 of the 1997 Rules of Civil Procedure,
which provided that the sheriff must levy on all the property of the judgment debtor,
excluding those exempt from execution, in the execution of a money judgment.
Finally, private respondents accused petitioner of coming to court with unclean
hands, specifically citing its misrepresentation that the award of the warehousemans
lien would result in the collapse of its business. This claim, private respondents
asserted, was contradicted by petitioners 1996 Audited Financial Statement indicating
that petitioners assets amounted to billions of pesos, and its 1996 Annual Report to its
stockholders where petitioner declared that the pending legal actions arising from their
normal course of business will not materially affect the Groups financial position. [25]

In reply, petitioner advocated that resort to the remedy of certiorari was proper since
the assailed orders were interlocutory, and not a final judgment or decision. Further, that
it was virtually deprived of its constitutional right to due process was a valid issue to
raise in the instant petition; and not even the doctrine of res judicata could bar this
petition as the element of a final and executory judgment was lacking. Petitioner
likewise disputed the claim that the resolution of 1 March 1995 was final and executory,
otherwise private respondents would not have filed an opposition and motion for partial
reconsideration[26] two years later. Petitioner also contended that the issues raised in this
petition were not resolved in G.R. No. 119231, as what was resolved there was private
respondents mere entitlement to a warehousemans lien, without specifying a
corresponding amount. In the instant petition, the issues pertained to the amount and
enforceability of said lien based on the arbitrary manner the amount was determined by
the trial court.
Petitioner further argued that the refining contracts private respondents invoked
could not bind the former since it was not a party thereto. In fact, said contracts were
not even attached to the quedans when negotiated; and that their validity was
repudiated by a supposed party thereto, Rosa Ng Sy, who claimed that the contract
was simulated, thus void pursuant to Article 1345 of the New Civil Code. Should the
refining contracts in turn be declared void, petitioner advocated that any determination
by the court of the existence and amount of the warehousemans lien due should be
arrived at using the test of reasonableness. Petitioner likewise noted that the other
refining contracts[27] presented by private respondents to show similar storage fees were
executed between the years 1996 and 1997, several years after 1989. Thus, petitioner
concluded, private respondents could not claim that the more recent and increased
rates where those which prevailed in 1989.
Finally, petitioner asserted that in the event that this Court should uphold the trial
courts determination of the amount of the warehousemans lien, petitioner should be
allowed to exercise its option as a judgment obligor to specify which of its properties
may be levied upon, citing Section 9(b), Rule 39 of the 1997 Rules of Civil Procedure.
Petitioner claimed to have been deprived of this option when the trial court issued the
garnishment and levy orders.
The petition was set for oral argument on 24 November 1997 where the parties
addressed the following issues we formulated for them to discuss:

(1) Is this special civil action the appropriate remedy?

(2) Has the trial court the authority to issue a writ of execution on Noahs Arks
claims for storage fees considering that this Court in G.R. No. 119231 merely
sustained the trial courts order of 20 December 1994 granting the Noahs Ark
Omnibus Motion and setting the reception of evidence on its claims for
storage fees, and of 1 March 1995 finding that there existed in favor of Noahs
Ark a warehousemans lien under Section 27 of R.A. No. 2137 and directing
that the execution of the judgment in favor of PNB be stayed and/or precluded

until the full amount of Noahs Arks lien is satisfied conformably with Section
31 of R.A. No. 2137?
(3) Is [petitioner] liable for storage fees (a) from the issuance of the quedans
in 1989 to Rosa Sy, St. Therese Merchandising and RNS Merchandising, up
to their assignment by endorsees Ramos and Zoleta to [petitioner] for their
loan; or (b) after [petitioner] has filed an action for specific performance and
damages (Civil Case No. 90-53023) against Noahs Ark for the latters failure to
comply with [petitioners] demand for the delivery of the sugar?
(4) Did respondent Judge commit grave abuse of discretion as charged? [28]
In our resolution of 24 November 1997, we summarized the positions of the parties
on these issues, thus:

Expectedly, counsel for petitioner submitted that certiorari under Rule 65 of

the Rules of Court is the proper remedy and not an ordinary appeal,
contending, among others, that the order of execution was not final. On the
other hand, counsel for respondents maintained that petitioner PNB
disregarded the hierarchy of courts as it bypassed the Court of Appeals when
it filed the instant petition before this Court.
On the second issue, counsel for petitioner submitted that the trial court had
no authority to issue the writ of execution or if it had, it denied PNB due
process when it held PNB liable for the astronomical amount
of P734,341,595.06 as warehousemans lien or storage fees. Counsel for
respondent, on the other hand, contended that the trial courts authority to
issue the questioned writ of execution is derived from the decision in G.R. No.
119231 which decision allegedly provided for ample or sufficient parameters
for the computation of the storage fees.
On the third issue, counsel for petitioner while presupposing that PNB may be
held to answer for storage fees, contended that the same should start from
the time the endorsees of the sugar quedans defaulted in their payments, i.e.,
1990 because before that, respondent Noahs Arks claim was that it was the
owner of the sugar covered by the quedans. On the other hand, respondents
counsel pointed out that PNBs liability should start from the issuance of the
quedans in 1989.
The arguments on the fourth issue, hinge on the parties arguments for or
against the first three issues. Counsel for petitioner stressed that the trial court

indeed committed a grave abuse of discretion, while respondents counsel

insisted that no grave abuse of discretion was committed by the trial court.[29]
Private respondents likewise admitted that during the pendency of the case, they
failed to avail of their options as a warehouseman. Concretely, they could have enforced
their lien through the foreclosure of the goods or the filing of an ordinary civil action.
Instead, they sought to execute this Courts judgment in G.R. No. 119231. They
eventually agreed that petitioners liability for the warehousemans lien should be
reckoned from the time it stepped into the shoes of the original depositors. [30]
In our resolution of 24 November 1997, we required the parties to simultaneously
submit their respective memoranda within 30 days or, in the alternative, a compromise
agreement should a settlement be achieved. Notwithstanding efforts exerted by the
parties, no mutually acceptable solution was reached.
In their respective memoranda, the parties reiterated or otherwise buttressed the
arguments raised in their previous pleadings and during the oral arguments on 24
November 1997, especially on the formulated issues.
The petition is meritorious.
We shall take up the formulated issues in seriatim.
A. This Special Civil Action is an Appropriate Remedy.

A careful perusal of the first assailed order shows that the trial court not only
granted the motion for execution, but also appreciated the evidence in the determination
of the warehousemans lien; formulated its computation of the lien; and adopted an
offsetting of the parties claims. Ineluctably, the order as in the nature of a final order for
it left nothing else to be resolved thereafter. Hence, petitioners remedy was
to appeal therefrom.[31] Nevertheless, petitioner was not precluded from availing of the
extraordinary remedy of certiorari under Rule 65 of the Rules of Court. It is well-settled
that the availability of an appeal does not foreclose recourse to the extraordinary
remedies of certiorari or prohibition where appeal is not adequate, or equally beneficial,
speedy and sufficient.[32]
Petitioner assailed the challenged orders as having been issued without or in
excess of jurisdiction or with grave abuse of discretion and alleged that it had no other
plain, speedy and adequate remedy in the ordinary course of law. As hereafter shown,
these claims were not unfounded, thus the propriety of this special civil action is beyond
question.
This Court has original jurisdiction, concurrent with that of Regional Trial Courts and
the Court of Appeals, over petitions for certiorari, prohibition, mandamus, quo
warranto and habeas corpus,[33] and we entertain direct resort to us in cases where
special and important reasons or exceptional and compelling circumstances justify the
same.[34] These reasons and circumstances are present here.
B. Under the Special Circumstances in This Case, Private Respondents May

Enforce Their Warehousemans Lien in Civil Case No. 90-53023.

The remedies available to a warehouseman, such as private respondents, to

enforce his warehousemans lien are:
(1)To refuse to deliver the goods until his lien is satisfied, pursuant to Section 31 of the
Warehouse Receipt Law;
(2) To sell the goods and apply the proceeds thereof to the value of the lien pursuant to
Sections 33 and 34 of the Warehouse Receipts Law; and
(3) By other means allowed by law to a creditor against his debtor, for the collection
from the depositor of all charges and advances which the depositor expressly or
impliedly contracted with the warehouseman to pay under Section 32 of the
Warehouse Receipt Law; or such other remedies allowed by law for the
enforcement of a lien against personal property under Section 35 of said law.The
third remedy is sought judicially by suing for the unpaid charges.[35]

Initially, private respondents availed of the first remedy. However, when petitioner
moved to execute the judgment in G.R. No. 107243 before the trial court, private
respondents, in turn, moved to have the warehouse charges and fees due them
determined and thereafter sought to collect these from petitioners. While the most
appropriate remedy for private respondents was an action for collection, in G.R. No.
119231, we already recognized their right to have such charges and fees determined in
Civil Case No. 90-53023. The import of our holding in G.R. No. 119231 was that private
respondents were likewise entitled to a judgment on their warehouse charges and fees,
and the eventual satisfaction thereof, thereby avoiding having to file another action to
recover these charges and fees, which would only have further delayed the resolution of
the respective claims of the parties, and as a corollary thereto, the indefinite deferment
of the execution of the judgment in G.R. No. 107243. Thus we note that petitioner, in
fact, already acquiesced to the scheduled dates previously set for the hearing on private
respondents warehousemans charges.
However, as will be shown below, it would be premature to execute the order fixing
the warehousemans charges and fees.
C. Petitioner is Liable for Storage Fees.

We confirmed petitioners liability for storage fees in G.R. No. 119231. However,
petitioners status as to the quedans must first be clearly defined and delineated to be
able to determine the extent of its liability.
Petitioner insisted, both in its petition and during the oral arguments on 24
November 1997, that it was a mere pledgee as the quedans were used to secure two
loans it granted.[36] In our decision in G.R. No. 107243, we upheld this contention of
petitioner, thus:

Zoleta and Ramos then used the quedans as security for loans obtained
by them from the Philippine National Bank (PNB) as security for loans
obtained by them in the amounts ofP23.5 million and P15.6 million,
respectively. These quedans they indorsed to the bank.[37]
As such, Martinez v. Philippine National Bank[38] becomes relevant:

In conclusion, we hold that where a warehouse receipt or quedan is

transferred or endorsed to a creditor only to secure the payment of a loan or
debt, the transferee or endorsee does not automatically become the owner of
the goods covered by the warehouse receipt or quedan but he merely retains
the right to keep and with the consent of the owner to sell them so as to
satisfy the obligation from the proceeds of the sale, this for the simple reason
that the transaction involved is not a sale but only a mortgage or pledge, and
that if the property covered by the quedans or warehouse receipts is lost
without the fault or negligence of the mortgagee or pledgee or the transferee
or endorsee of the warehouse receipt or quedan, then said goods are to be
regarded as lost on account of the real owner, mortgagor or pledgor.
The indorsement and delivery of the warehouse receipts (quedans) by Ramos and
Zoleta to petitioner was not to convey title to or ownership of the goods but to secure
(by way of pledge) the loans granted to Ramos and Zoleta by petitioner. The
indorsement of the warehouse receipts (quedans), to perfect the pledge, [39] merely
constituted a symbolical or constructive delivery of the possession of the thing thus
encumbered.[40]
The creditor, in a contract of real security, like pledge, cannot appropriate without
foreclosure the things given by way of pledge. [41] Any stipulation to the contrary,
termed pactum commissorio, is null and void.[42] The law requires foreclosure in order to
allow a transfer of title of the good given by way of security from its pledgor, [43] and
before any such foreclosure, the pledgor, not the pledgee, is the owner of the
goods. In Philippine National Bank v. Atendido,[44] we said:

The delivery of the palay being merely by way of security, it follows that by the
nature of the transaction its ownership remains with the pledgor subject only
to foreclosure in case of non-fulfillment of the obligation. By this we mean that
if the obligation is not paid upon maturity the most that the pledgee can do is
to sell the property and apply the proceeds to the payment of the obligation
and to return the balance, if any, to the pledgor (Art. 1872, Old Civil Code [Art.
2112, New Civil Code]). This is the essence of this contract, for, according to
law, a pledgee cannot become the owner of, nor appropriate to himself, the
thing given in pledge (Article 1859, Old Civil Code [Art. 2088, New Civil
Code]) The fact that the warehouse receipt covering palay was delivered,
endorsed in blank, to the bank does not alter the situation, the purpose of
such endorsement being merely to transfer the juridical possession of the
property to the pledgees and to forestall any possible disposition thereof on
the part of the pledgor. This is true notwithstanding the provisions of the
Warehouse Receipt Law.

The warehouseman, nevertheless, is entitled to the warehousemans lien that

attaches to the goods invokable against anyone who claims a right of possession
thereon.
The next issue to resolve is the duration of time the right of petitioner over the
goods may be held subject to the warehousemans lien.
Sections 8, 29 and 31 of the Warehouse Receipts Law now come to fore. They
provide, as follows:

SECTION 8. Obligation of warehousemen to deliver. A warehouseman, in the

absence of some lawful excuse provided by this Act, is bound to deliver the
goods upon a demand made either by the holder of a receipt for the goods or
by the depositor, if such demand is accompanied with:
(a) An offer to satisfy warehousemans lien;
(b) An offer to surrender the receipt, if negotiable, with such
indorsements as would be necessary for the negotiation of
the receipt; and
(c) A readiness and willingness to sign, when the goods are
delivered, an acknowledgment that they have been
delivered, if such signature is requested by the
warehouseman.
In case the warehouseman refuses or fails to deliver the goods in compliance
with a demand by the holder or depositor so accompanied, the burden shall
be upon the warehouseman to establish the existence of a lawful excuse for
such refusal.
SECTION 29. How the lien may be lost. A warehouseman loses his lien upon
goods;
(a) By surrendering possession thereof, or
(b) By refusing to deliver the goods when a demand is made with
which he is bound to comply under the provisions of this Act.
SECTION 31. Warehouseman need not deliver until lien is satisfied. A
warehouseman having a lien valid against the person demanding the goods
may refuse to deliver the goods to him until the lien is satisfied.

Simply put, where a valid demand by the lawful holder of the quedans for the
delivery of the goods is refused by the warehouseman, despite the absence of a lawful
excuse provided by the statute itself, the warehousemans lien is thereafter
concomitantly lost. As to what the law deems a valid demand, Section 8 enumerates
what must accompany a demand; while as regards the reasons which a warehouseman
may invoke to legally refuse to effect delivery of the goods covered by the quedans,
these are:

(1) That the holder of the receipt does not satisfy the conditions
prescribed in Section 8 of the Act. (See Sec. 8, Act No. 2137)
(2) That the warehouseman has legal title in himself on the goods,
such title or right being derived directly or indirectly from a transfer made
by the depositor at the time of or subsequent to the deposit for storage, or
from the warehousemans lien. (Sec. 16, Act No. 2137)
(3) That the warehouseman has legally set up the title or right of third
persons as lawful defense for non-delivery of the goods as follows:
(a) Where the warehouseman has been requested, by or on behalf of the
person lawfully entitled to a right of property of or possession in the goods, not
to make such delivery (Sec. 10, Act No. 2137), in which case, the
warehouseman may, either as a defense to an action brought against him for
nondelivery of the goods, or as an original suit, whichever is appropriate,
require all known claimants to interplead (Sec. 17, Act No. 2137);
(b) Where the warehouseman had information that the delivery about to be
made was to one not lawfully entitled to the possession of the goods (Sec.
10, Act No. 2137), in which case, the warehouseman shall be excused from
liability for refusing to deliver the goods, either to the depositor or person
claiming under him or to the adverse claimant, until the warehouseman has
had a reasonable time to ascertain the validity of the adverse claims or to
bring legal proceedings to compel all claimants to interplead (Sec. 18, Act No.
2137); and
(c) Where the goods have already been lawfully sold to third persons to satisfy
a warehousemans lien, or have been lawfully sold or disposed of because of
their perishable or hazardous nature. (Sec. 36, Act No. 2137).
(4) That the warehouseman having a lien valid against the person demanding
the goods refuses to deliver the goods to him until the lien is satisfied. (Sec.
31, Act No. 2137)

(5) That the failure was not due to any fault on the part of the warehouseman, as by
showing that, prior to demand for delivery and refusal, the goods were stolen or
destroyed by fire, flood, etc., without any negligence on his part, unless he has
contracted so as to be liable in such case, or that the goods have been taken by the
mistake of a third person without the knowledge or implied assent of the
warehouseman, or some other justifiable ground for non-delivery. (67 C.J. 532)[45]
Regrettably, the factual settings do not sufficiently indicate whether the demand to
obtain possession of the goods complied with Section 8 of the law. The presumption,
nevertheless, would be that the law was complied with, rather than breached, by
petitioner. Upon the other hand, it would appear that the refusal of private respondents
to deliver the goods was not anchored on a valid excuse, i.e., non-satisfaction of the
warehousemans lien over the goods, but on an adverse claim of ownership. Private
respondents justified their refusal to deliver the goods, as stated in their Answer with
Counterclaim and Third-Party Complaint in Civil Case No. 90-53023, by claiming that
they are still the legal owners of the subject quedans and the quantity of sugar
represented therein. Under the circumstances, this hardly qualified as a valid, legal
excuse. The loss of the warehousemans lien, however, does not necessarily mean the
extinguishment of the obligation to pay the warehousing fees and charges which
continues to be a personal liability of the owners, i.e., the pledgors, not the pledgee, in
this case. But even as to the owners-pledgors, the warehouseman fees and charges
have ceased to accrue from the date of the rejection by Noahs Ark to heed the lawful
demand by petitioner for the release of the goods.
The finality of our denial in G.R. No. 119231 of petitioners petition to nullify the trial
courts order of 01 March 1995 confirms the warehousemans lien; however, such lien,
nevertheless, should be confined to the fees and charges as of the date in March 1990
when Noahs Ark refused to heed PNBs demand for delivery of the sugar stocks and in
no event beyond the value of the credit in favor of the pledgee (since it is basic that, in
foreclosures, the buyer does not assume the obligations of the pledgor to his other
creditors even while such buyer acquires title over the goods less any existing preferred
lien thereover).[46] The foreclosure of the thing pledged, it might incidentally be
mentioned, results in the full satisfaction of the loan liabilities to the pledgee of the
pledgors.[47]
D. Respondent Judge Committed Grave Abuse of Discretion.

We hold that the trial court deprived petitioner of due process in rendering the
challenged order of 15 April 1996 without giving petitioner an opportunity to present its
evidence. During the final hearing of the case, private respondents commenced and
concluded their presentation of evidence as to the matter of the existence of and
amount owing due to their warehousemans lien. Their exhibits were duly marked and
offered, and the trial court thereafter ruled, to wit:

Court: Order.
With the admission of Exhibits 1 to 11, inclusive of submarkings, as part of the
testimony of Benigno Bautista, the defendant [private respondents] is given

five (5) days from today to file its memorandum. Likewise, plaintiff [petitioner]
is given five (5) days, from receipt of defendants [private respondents]
memorandum, to file its comment thereto. Thereafter the same shall be
deemed submitted for decision.
SO ORDERED.[48]
Nowhere in the transcript of stenographic notes, however, does it show that
petitioner was afforded an opportunity to comment on, much less, object to, private
respondents offer of exhibits, or even present its evidence on the matter in dispute. In
fact, petitioner immediately moved to nullify the proceedings conducted during that
hearing, but its motion was ignored and never resolved by the trial court. Moreover, it
cannot be said that petitioners filing of subsequent pleadings, where it attached its
affidavits and documents to contest the warehousemans lien, was sufficient to fully
satisfy the requirements of due process. The subsequent pleadings were filed only to
show that petitioner had evidence to refute the claims of private respondents or that the
latter were not entitled thereto, but could not have adequately substituted for a fullblown opportunity to present its evidence, given the exorbitant amounts involved. This,
when coupled with the fact that the motion to postpone the hearing filed by petitioners
counsel was not unreasonable, leads us to conclude that petitioners right to fully
present its case was rendered nugatory. It is thus evident to us that there was undue
and unwarranted haste on the part of respondent court to rule in favor of private
respondents. We do not hesitate to say that any tilt of the scales of justice, no matter
how slight, evokes suspicion and erodes a litigants faith and hope in seeking recourse
before courts of law.
Likewise do we refuse to give credence to private respondents allegation that the
parties agreed that petitioners presentation of evidence would be submitted on the basis
of affidavits,[49] without, however, specifying any order or written agreement to that effect.
It is interesting to note that among the evidence petitioner wanted to present were
reports obtained from Noahs Ark, disclosing that the latter failed to maintain a sufficient
inventory to satisfy the sugar stock covered by the subject quedans. This was a serious
allegation, and on that score alone, the trial court should have allowed a hearing on the
matter, especially in light of the magnitude of the claims sought. If it turns out to be true
that the stock of sugar Noahs Ark had in possession was below the quantities specified
in the quedans, then petitioner should not be made to pay for storage and preservation
expenses for non-existent goods.
It was likewise grave abuse of discretion on the part of respondent court to order
immediate execution of the 15 April 1997 order. We ruled earlier that said order was in
the nature of a final order fixing the amount of the warehousemans charges and fees,
and petitioners net liability, after the set-off of the money judgment in its favor in G.R.
No. 107243. Section 1 of Rule 39 of the Rules of Court explicitly provides that execution
shall issue as a matter of right, on motion, upon a judgment or order that disposes of the
action or proceeding upon the expiration of the period to appeal therefrom if no appeal
has been duly perfected. Execution pending appeal is, however, allowed in Section 2

thereof, but only on motion with due notice to the adverse party, more importantly, only
upon good reasons shown in a special order. Here, there is no showing that a motion for
execution pending appeal was filed and that a special order was issued by respondent
court. Verily, the immediate execution only served to further strengthen our perception
of undue and unwarranted haste on the part of respondent court in resolving the issue
of the warehousemans lien in favor of private respondents.
In light of the above, we need not rule anymore on the fourth formulated issue.
WHEREFORE, the petition is GRANTED. The challenged orders of 15 April and 14
July 1997, including the notices of levy and garnishment, of the Regional Trial Court of
Manila, Branch 45, in Civil Case No. 90-53023 are REVERSED and SET ASIDE, and
said court is DIRECTED to conduct further proceedings in said case:
(1) to allow petitioner to present its evidence on the matter of the warehousemans lien;
(2) to compute the petitioners warehousemans lien in light of the foregoing
observations; and
(3) to determine whether, for the relevant period, Noahs Ark maintained a sufficient
inventory to cover the volume of sugar specified in the quedans.

Costs against private respondents.

SO ORDERED.
Bellosillo, Vitug, Panganiban, and Quisumbing, JJ., concur.

COUNTRY
INSURANCE
CORPORATION,
Petitioner,

BANKERS

G.R. No. 165487

Present:

-versus-

CARPIO,J.,
Chairperson,
LEONARDO DE CASTRO,*
VILLARAMA, JR.,**
PEREZ, and
SERENO, JJ.
Promulgated:

ANTONIO LAGMAN,
Respondent.
July 13, 2011
x ----------------------------------------------------------------------------------------x
DECISION

PEREZ, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, assailing the Decision[1] and Resolution[2] of the Court of Appeals
dated 21 June 2004 and 24 September 2004, respectively.
These are the undisputed facts.
Nelson Santos (Santos) applied for a license with the National Food
Authority (NFA) to engage in the business of storing not more than 30,000 sacks
of palay valued atP5,250,000.00 in his warehouse at Barangay Malacampa,
Camiling, Tarlac. Under Act No. 3893 or the General Bonded Warehouse Act, as
amended, [3] the approval for said license was conditioned upon posting of a cash
bond, a bond secured by real estate, or a bond signed by a duly authorized bonding
company, the amount of which shall be fixed by the NFA Administrator at not less
than thirty-three and one third percent (33 1/3%) of the market value of the
maximum quantity of rice to be received.
Accordingly, Country Bankers Insurance Corporation (Country Bankers)
issued Warehouse Bond No. 03304[4] for P1,749,825.00 on 5 November 1989 and
Warehouse Bond No. 02355[5] for P749,925.00 on 13 December 1989 (1989
Bonds) through its agent, Antonio Lagman (Lagman). Santos was the bond
principal, Lagman was the surety and the Republic of the Philippines, through the
NFA was the obligee. In consideration of these issuances, corresponding Indemnity
Agreements[6] were executed by Santos, as bond principal, together with Ban Lee
Lim Santos (Ban Lee Lim), Rhosemelita Reguine (Reguine) and Lagman, as cosignors. The latter bound themselves jointly and severally liable to Country
Bankers for any damages, prejudice, losses, costs, payments, advances and
expenses of whatever kind and nature, including attorneys fees and legal costs,
which it may sustain as a consequence of the said bond; to reimburse Country
Bankers of whatever amount it may pay or cause to be paid or become liable to pay
thereunder; and to pay interest at the rate of 12% per annum computed and
compounded monthly, as well as to pay attorneys fees of 20% of the amount due it.
[7]

Santos then secured a loan using his warehouse receipts as collateral.

When the loan matured, Santos defaulted in his payment. The sacks
of palay covered by the warehouse receipts were no longer found in the bonded
warehouse.[9] By virtue of the surety bonds, Country Bankers was compelled to
pay P1,166,750.37.[10]
[8]

Consequently, Country Bankers filed a complaint for a sum of money

docketed as Civil Case No. 95-73048 before the Regional Trial Court (RTC) of
Manila. In his Answer, Lagman alleged that the 1989 Bonds were valid only for 1
year from the date of their issuance, as evidenced by receipts; that the bonds were
never renewed and revived by payment of premiums; that on 5 November 1990,
Country Bankers issued Warehouse Bond No. 03515 (1990 Bond) which was also
valid for one year and that no Indemnity Agreement was executed for the purpose;
and that the 1990 Bond supersedes, cancels, and renders no force and effect the
1989 Bonds.[11]
The bond principals, Santos and Ban Lee Lim, were not served with summons
because they could no longer be found.[12] The case was eventually dismissed
against them without prejudice.[13] The other co-signor, Reguine, was declared in
default for failure to file her answer.[14]
On 21 September 1998, the trial court rendered judgment declaring Reguine and
Lagman jointly and severally liable to pay Country Bankers the amount
of P2,400,499.87.[15]The dispositive portion of the RTC Decision[16] reads:
WHEREFORE, premises considered, judgment is hereby rendered, ordering defendants
Rhomesita [sic] Reguine and Antonio Lagman, jointly and severally liable to pay
plaintiff, Country Bankers Assurance Corporation, the amount of P2,400,499.87,
with 12% interest from the date the complaint was filed until fully satisfied plus
20% of the amount due plaintiff as and for attorneys fees and to pay the costs.
As the Court did not acquire jurisdiction over the persons of defendants
Nelson Santos and Ban Lee Lim Santos, let the case against them be
DISMISSED. Defendant Antonio Lagmans counterclaim is likewise
DISMISSED, for lack of merit.[17]

In holding Lagman and Reguine solidarily liable to Country Bankers, the trial court
relied on the express terms of the Indemnity Agreement that they jointly and
severally bound themselves to indemnify and make good to Country Bankers any
liability which the latter may incur on account of or arising from the execution of
the bonds.[18]
The trial court rationalized that the bonds remain in force unless cancelled by the
Administrator of the NFA and cannot be unilaterally cancelled by Lagman. The
trial court emphasized that for the failure of Lagman to comply with his obligation

under the Indemnity Agreements, he is likewise liable for damages as a

consequence of the breach.
Lagman filed an appeal to the Court of Appeals, docketed as CA G.R. CV No.
61797. He insisted that the lifetime of the 1989 Bonds, as well as the
corresponding Indemnity Agreements was only 12 months. According to Lagman,
the 1990 Bond was not pleaded in the complaint because it was not covered by an
Indemnity Agreement and it superseded the two prior bonds.[19]
On 21 June 2004, the Court of Appeals rendered the assailed Decision reversing
and setting aside the Decision of the RTC and ordering the dismissal of the
complaint filed against Lagman.[20]
The appellate court held that the 1990 Bond superseded the 1989 Bonds. The
appellate court observed that the 1990 Bond covers 33.3% of the market value of
the palay, thereby manifesting the intention of the parties to make the latter bond
more comprehensive. Lagman was also exonerated by the appellate court from
liability because he was not a signatory to the alleged Indemnity Agreement of 5
November 1990 covering the 1990 Bond. The appellate court rejected the
argument of Country Bankers that the 1989 bonds were continuing, finding, as
reason therefor, that the receipts issued for the bonds indicate that they were
effective for only one-year.
Country Bankers sought reconsideration which was denied in a Resolution dated
24 September 2004.[21]
Expectedly, Country Bankers filed the instant petition attributing two (2) errors to
the Court of Appeals, to wit:
A.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
DISREGARDING THE EXPRESS PROVISIONS OF SECTION 177 OF THE
INSURANCE CODE WHEN IT HELD THAT THE SUBJECT SURETY
BONDS
WERE
SUPERSEDED
BY A SUBSEQUENT
BOND
NOTWITHSTANDING THE NON-CANCELLATION THEREOF BY THE
BOND OBLIGEE.
B.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
HOLDING THAT RECEIPTS FOR THE PAYMENT OF PREMIUMS PREVAIL
OVER THE EXPRESS PROVISION OF THE SURETY BOND THAT FIXES
THE TERM THEREOF.[22]

Country Bankers maintains that by the express terms of the 1989 Bonds, they shall
remain in full force until cancelled by the Administrator of the NFA. As continuing
bonds, Country Bankers avers that Section 177 of the Insurance Code applies, in
that the bond may only be cancelled by the obligee, by the Insurance
Commissioner or by a competent court.
Country Bankers questions the existence of a third bond, the 1990 Bond,
which allegedly cancelled the 1989 Bonds on the following grounds: First, Lagman
failed to produce the original of the 1990 Bond and no basis has been laid for the
presentation of secondary evidence; Second, the issuance of the 1990 Bond was
not approved and processed by Country Bankers; Third, the NFA as bond obligee
was not in possession of the 1990 Bond. Country Bankers stresses that the
cancellation of the 1989 Bonds requires the participation of the bond obligee. Ergo,
the bonds remain subsisting until cancelled by the bond obligee. Country Bankers
further assert that Lagman also failed to prove that the NFA accepted the 1990
Bond in replacement of the 1989 Bonds.
Country Bankers notes that the receipts issued for the 1989 Bonds are mere
evidence of premium payments and should not be relied on to determine the period
of effectivity of the bonds. Country Bankers explains that the receipts only
represent the transactions between the bond principal and the surety, and does not
involve the NFA as bond obligee.
Country Bankers calls this Courts attention to the incontestability clause contained
in the Indemnity Agreements which prohibits Lagman from questioning his
liability therein.
In his Comment, Lagman raises the issue of novation by asserting that the 1989
Bonds were superseded by the 1990 Bond, which did not include Lagman as
party. Therefore, Lagman argues, Country Bankers has no cause of action against
him. Lagman also reiterates that because of novation, the 1989 bonds are neither
perpetual nor continuing.
Lagman anchors his defense on two (2) arguments: 1) the 1989 Bonds have
expired and 2) the 1990 Bond novates the 1989 Bonds.

The Court of Appeals held that the 1989 bonds were effective only for one
(1) year, as evidenced by the receipts on the payment of premiums.
We do not agree.
The official receipts in question serve as proof of payment of the premium
for one year on each surety bond. It does not, however, automatically mean that the
surety bond is effective for only one (1) year. In fact, the effectivity of the bond is
not wholly dependent on the payment of premium. Section 177 of the Insurance
Code expresses:
Sec. 177. The surety is entitled to payment of the premium as soon as the
contract of suretyship or bond is perfected and delivered to the obligor. No
contract of suretyship or bonding shall be valid and binding unless and until the
premium therefor has been paid, except where the obligee has accepted the
bond, in which case the bond becomes valid and enforceable irrespective of
whether or not the premium has been paid by the obligor to the
surety: Provided, That if the contract of suretyship or bond is not accepted by, or
filed with the obligee, the surety shall collect only reasonable amount, not
exceeding fifty per centum of the premium due thereon as service fee plus the cost
of stamps or other taxes imposed for the issuance of the contract or
bond: Provided, however, That if the non-acceptance of the bond be due to the
fault or negligence of the surety, no such service fee, stamps or taxes shall be
collected. (Emphasis supplied)

The 1989 Bonds have identical provisions and they state in very clear terms
the effectivity of these bonds, viz:
NOW, THEREFORE, if the above-bounded Principal shall well and truly deliver
to the depositors PALAY received by him for STORAGE at any time that demand
therefore is made, or shall pay the market value therefore in case he is unable to
return the same, then this obligation shall be null and void; otherwise it shall
remain in full force and effect and may be enforced in the manner provided by
said Act No. 3893 as amended by Republic Act No. 247 and P.D. No. 4. This
bond shall remain in force until cancelled by the Administrator of National
Food Authority.[23]

This provision in the bonds is but in compliance with the second paragraph of
Section 177 of the Insurance Code, which specifies that a continuing bond, as in
this case where there is no fixed expiration date, may be cancelled only by the
obligee, which is the NFA, by the Insurance Commissioner, and by the court. Thus:

In case of a continuing bond, the obligor shall pay the subsequent annual
premium as it falls due until the contract of suretyship is cancelled by the obligee
or by the Commissioner or by a court of competent jurisdiction, as the case may
be.

By law and by the specific contract involved in this case, the effectivity of the bond
required for the obtention of a license to engage in the business of receiving rice
for storage is determined not alone by the payment of premiums but principally by
the Administrator of the NFA. From beginning to end, the Administrators brief is
the enabling or disabling document.
The clear import of these provisions is that the surety bonds in question
cannot be unilaterally cancelled by Lagman. The same conclusion was reached by
the trial court and we quote:
As there appears no record of cancellation of the Warehouse Bonds No. 03304
and No. 02355 either by the administrator of the NFA or by the Insurance
Commissioner or by the Court, the Warehouse Bonds are valid and binding and
cannot be unilaterally cancelled by defendant Lagman as general agent of the
plaintiff.[24]

While the trial court did not directly rule on the existence and validity of the
1990 Bond, it upheld the 1989 Bonds as valid and binding, which could not be
unilaterally cancelled by Lagman. The Court of Appeals, on the other hand,
acknowledged the 1990 Bond as having cancelled the two previous bonds by
novation. Both courts however failed to discuss their basis for rejecting or
admitting the 1990 Bond, which, as we indicated, is bone to pick in this case.
Lagmans insistence on novation depends on the validity, nay, existence of
the allegedly novating 1990 Bond. Country Bankers understandably impugns
both. We see the point. Lagman presented a mere photocopy of the 1990 Bond. We
rule as inadmissible such copy.
Under the best evidence rule, the original document must be produced
whenever its contents are the subject of inquiry.[25] The rule is encapsulated in
Section 3, Rule 130 of the Rules of Court, as follow:
Sec. 3. Original document must be produced; exceptions. When the
subject of inquiry is the contents of a documents, no evidence shall be admissible
other than the original document itself, except in the following cases:

(a) When the original has been lost or destroyed, or cannot be produced in
court, without bad faith on the part of the offeror;
(b) When the original is in the custody or under the control of the party
against whom the evidence is offered, and the latter fails to produce it after
reasonable notice;
(c) When the original consists of numerous accounts or other documents
which cannot be examined in court without great loss of time and the fact sought
to be established from them is only the general result of the whole; and
(d) When the original is a public record in the custody of a public officer
or is recorded in a public office.[26]

A photocopy, being a mere secondary evidence, is not admissible unless it is

shown that the original is unavailable.[27] Section 5, Rule 130 of the Rules of Court
states:
SEC.5 When original document is unavailable. When the original
document has been lost or destroyed, or cannot be produced in court, the offeror,
upon proof of its execution or existence and the cause of its unavailability without
bad faith on his part, may prove its contents by a copy, or by a recital of its
contents in some authentic document, or by the testimony of witnesses in the
order stated.

Before a party is allowed to adduce secondary evidence to prove the

contents of the original, the offeror must prove the following: (1) the existence or
due execution of the original; (2) the loss and destruction of the original or the
reason for its non-production in court; and (3) on the part of the offeror, the
absence of bad faith to which the unavailability of the original can be
attributed. The correct order of proof is as follows: existence, execution, loss, and
contents.[28]
In the case at bar, Lagman mentioned during the direct examination that
there are actually four (4) duplicate originals of the 1990 Bond: the first is kept by
the NFA, the second is with the Loan Officer of the NFA in Tarlac, the third is with
Country Bankers and the fourth was in his possession. [29] A party must first present
to the court proof of loss or other satisfactory explanation for the non-production of
the original instrument.[30] When more than one original copy exists, it must appear
that all of them have been lost, destroyed, or cannot be produced in court before
secondary evidence can be given of any one. A photocopy may not be used
without accounting for the other originals.[31]
Despite knowledge of the existence and whereabouts of these duplicate
originals, Lagman merely presented a photocopy. He admitted that he kept a copy

of the 1990 Bond but he could no longer produce it because he had already severed
his ties with Country Bankers. However, he did not explain why severance of ties
is by itself reason enough for the non-availability of his copy of the bond
considering that, as it appears from the 1989 Bonds, Lagman himself is a
bondsman. Neither did Lagman explain why he failed to secure the original from
any of the three other custodians he mentioned in his testimony. While he
apparently was able to find the original with the NFA Loan Officer, he was merely
contented with producing its photocopy. Clearly, Lagman failed to exert diligent
efforts to produce the original.
Fueling further suspicion regarding the existence of the 1990 Bond is the
absence of an Indemnity Agreement. While Lagman argued that a 1990 Bond
novates the 1989 Bonds, he raises the defense of non-existence of an indemnity
agreement which would conveniently exempt him from liability. The trial court
deemed this defense as indicia of bad faith, thus:
To the observation of the Court, defendant Lagman contended that being a
general agent (which requires a much higher qualification than an ordinary agent),
he is expected to have attended seminars and workshops on general insurance
wherein he is supposed to have acquired sufficient knowledge of the general
principles of insurance which he had fully practised or implemented from
experience. It somehow appears to the Courts assessment of his reneging liability
of the bonds in question, that he is still short of having really understood the
principle of suretyship with reference to the transaction of indemnity in which he
is a signatory. If, as he alleged, that he is well-versed in insurance, the Court finds
no excuse for him to stand firm in denying his liability over the claim against the
bonds with indemnity provision. If he insists in not recognizing that liability, the
more that this Court is convinced that his knowledge that insurance operates
under the principle of good faith is inadequate. He missed the exception provided
by Section 177 of the Insurance Code, as amended, wherein non-payment of
premium would not have the same essence in his mind that the agreements
entered into would not have full force or effect. It could be glimpsed, therefore,
that the mere fact of cancelling bonds with indemnity agreements and
replacing them (absence of the same) to escape liability clearly manifests bad
faith on his part.[32] (Emphasis supplied.)

Having discounted the existence and/or validity of the 1990 Bond, there can be no
novation to speak of. Novation is the extinguishment of an obligation by the
substitution or change of the obligation by a subsequent one which extinguishes or
modifies the first, either by changing the object or principal conditions, or by
substituting another in place of the debtor, or by subrogating a third person in the

rights of the creditor. For novation to take place, the following requisites must
concur: 1) There must be a previous valid obligation; 2) The parties concerned
must agree to a new contract; 3) The old contract must be extinguished; and 4)
There must be a valid new contract.[33]
In this case, only the first element of novation exists. Indeed, there is a
previous valid obligation, i.e., the 1989 Bonds. There is however neither a valid
new contract nor a clear agreement between the parties to a new contract since the
very existence of the 1990 Bond has been rendered dubious. Without the new
contract, the old contract is not extinguished.
Implied novation necessitates a new obligation with which the old is in total
incompatibility such that the old obligation is completely superseded by the new
one.[34]Quite obviously, neither can there be implied novation. In this case, there is
no new obligation.
The liability of Lagman is expressed in Indemnity Agreements executed in
consideration of the 1989 Bonds which we have considered as continuing
contracts. Under both Indemnity Agreements, Lagman, as co-signor, together with
Santos, Ban Lee Lim and Reguine, bound themselves jointly and severally to
Country Bankers to indemnify it for any damage or loss sustained on the account
of the execution of the bond, among others. The pertinent identical stipulations of
the Indemnity Agreements state:
INDEMNITY: To indemnify and make good to the COMPANY jointly
and severally, any damages, prejudice, loss, costs, payments advances
and expenses of whatever kind and nature, including attorneys fees and
legal costs, which the COMPANY may, at any time, sustain or incur, as
well as to reimburse to said COMPANY all sums and amounts of money
which the COMPANY or its representatives shall or may pay or cause to
be paid or become liable to pay, on account of or arising from the
execution of the above-mentioned BOND or any extension, renewal,
alteration or substitution thereof made at the instance of the undersigned
or anyone of them.[35]

Moreover, the Indemnity Agreements

Incontestability Clauses which provide:

also

contained

identical

INCONTESTABILITY OF PAYMENTS MADE BY THE

COMPANY: Any payment or disbursement made by the COMPANY
on account of the above-mentioned Bond, its renewals, extensions,
alterations or substitutions either in the belief that the COMPANY was
obligated to make such payment or in the belief that said payment was
necessary or expedient in order to avoid greater losses or obligations for
which the COMPANY might be liable by virtue of the terms of the
above-mentioned Bond, its renewals, extensions, alterations, or
substitutions, shall be final and shall not be disputed by the undersigned,
who hereby jointly and severally bind themselves to indemnify [Country
Bankers] of any and all such payments, as stated in the preceding
clauses.
In case the COMPANY shall have paid[,] settled or compromised
any liability, loss, costs, damages, attorneys fees, expenses, claims[,]
demands, suits, or judgments as above-stated, arising out of or in
connection with said bond, an itemized statement thereof, signed by an
officer of the COMPANY and other evidence to show said payment,
settlement or compromise, shall be prima facie evidence of said
payment, settlement or compromise, as well as the liability of the
undersigned in any and all suits and claims against the undersigned
arising out of said bond or this bond application. [36]
Lagman is bound by these Indemnity Agreements. Payments made by
Country Bankers by virtue of the 1989 Bonds gave rise to Lagmans obligation to
reimburse it under the Indemnity Agreements. Lagman, being a solidary debtor, is
liable for the entire obligation.

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution

of the Court of Appeals in CA-G.R. CV No. 61797 are SET ASIDE and the
Decision dated 21 September 1998 of the RTC is hereby REINSTATED.
SO ORDERED.
G.R. No. L-17825

June 26, 1922

In the matter of the Involuntary insolvency of U. DE POLI.

FELISA ROMAN, claimant-appellee,
vs.
ASIA BANKING CORPORATION, claimant-appellant.
Wolfson, Wolfson and Schwarzkopf and Gibbs, McDonough & Johnson for appellant.
Antonio V. Herrero for appellee.

OSTRAND, J.:
This is an appeal from an order entered by the Court of First Instance of Manila in civil No. 19240,
the insolvency of Umberto de Poli, and declaring the lien claimed by the appellee Felisa Roman
upon a lot of leaf tobacco, consisting of 576 bales, and found in the possession of said insolvent,
superior to that claimed by the appellant, the Asia Banking Corporation.
The order appealed from is based upon the following stipulation of facts:
It is hereby stipulated and agreed by and between Felisa Roman and Asia Banking
Corporation, and on their behalf by their undersigned attorneys, that their respective rights,
in relation to the 576 bultos of tobacco mentioned in the order of this court dated April 25,
1921, be, and hereby are, submitted to the court for decision upon the following:
I. Felisa Roman claims the 576 bultos of tobacco under and by virtue of the instrument, a
copy of which is hereto attached and made a part hereof and marked Exhibit A.
II. That on November 25, 1920, said Felisa Roman notified the said Asia Banking
Corporation of her contention, a copy of which notification is hereto attached and made a
part hereof and marked Exhibit B.
III. That on November 29, 1920, said Asia Banking Corporation replied as per copy hereto
attached and marked Exhibit C.
IV. That at the time the above entitled insolvency proceedings were filed the 576 bultos of
tobacco were in possession of U. de Poli and now are in possession of the assignee.
V. That on November 18, 1920, U. de Poli, for value received, issued a quedan, covering
aforesaid 576bultos of tobacco, to the Asia Banking Corporation as per copy of quedan
attached and marked Exhibit D.
VI. That aforesaid 576 bultos of tobacco are part and parcel of the 2,777 bultos purchased by
U. de Poli from Felisa Roman.
VII. The parties further stipulate and agree that any further evidence that either of the parties
desire to submit shall be taken into consideration together with this stipulation.
Manila, P. I., April 28, 1921.
(Sgd.) ANTONIO V. HERRERO
Attorney for Felisa Roman
(Sgd.) WOLFSON, WOLFSON & SCHWARZKOPF
Attorney for Asia Banking Corp.
Exhibit A referred to in the foregoing stipulation reads:

1. Que la primera parte es duea de unos dos mil quinientos a tres mil quintales de tacabo
de distintas clases, producidos en los municipios de San Isidro, Kabiaw y Gapan adquiridos
por compra con dinero perteneciente a sus bienes parafernales, de los cuales es ella
administradora.
2. Que ha convenido la venta de dichos dos mil quinientos a tres mil quintales de tabaco
mencionada con la Segunda Parte, cuya compraventa se regira por las condiciones
siguientes:
(a) La Primera Parte remitira a la Segunda debidamente enfardado el tabaco de que ella es
propietaria enbultos no menores de cincuenta kilos, siendo de cuenta de dicha Primera
Parte todos los gastos que origine dicha mercancja hasta la estacion de ferrocarril de
Tutuban, en cuyo lugar se hara cargo la Segunda y desde cuyo instante seran de cuenta de
esta los riesgos de la mercancia.
(b) El precio en que la Primera Parte vende a la Segunda el tabaco mencionada es el de
veintiseis pesos (P26), moneda filipina, por quintal, pagaderos en la forma que despues se
establece.
(c) La Segunda Parte sera la consignataria del tabaco en esta Ciudad de Manila quien se
hara cargo de el cuando reciba la factura de embarque y la guia de Rentas Internas,
trasladandolo a su bodega quedando en la misma en calidad de deposito hasta la fecha en
que dicha Segunda Parte pague el precio del mismo, siendo de cuenta de dicha Segunda
Parte el pago de almacenaje y seguro.
(d) LLegada la ultima expedicion del tabaco, se procedera a pesar el mismo con
intervencion de la Primera Parte o de un agente de ella, y conocido el numero total de
quintales remitidos, se hara liquidacion del precio a cuenta del cual se pagaran quince mil
pesos (P15,000), y el resto se dividira en cuatro pagares vencederos cada uno de ellos
treinta dias despues del anterior pago; esto es, el primer pagare vencera a los treinta dias
de la fecha en que se hayan pagado los quince mil pesos, el segundo a igual tiempo del
anterior pago, y asi sucesivamente; conviniendose que el capital debido como precio del
tabaco devengara un interes del diez por ciento anual.
Los plazos concedidos al comprador para el pago del precio quedan sujetos a la condicion
resolutoria de que si antes del vencimiento de cualquier plazo, el comprador vendiese parte
del tabaco en proporcion al importe de cualquiera de los pagares que restasen por vencer, o
caso de que vendiese, pues se conviene para este caso que desde el momento en que la
Segunda Parte venda el tabaco, el deposito del mismo, como garantia del pago del precio,
queda cancelado y simultaneamente es exigible el importe de la parte por pagar.
Leido este documento por los otorgantes y encontrandolo conforme con lo por ellos
convenido, lo firman la Primera Parte en el lugar de su residencia, San Isidro de Nueva
Ecija, y la Segunda en esta Ciudad de Manila, en las fechas que respectivamente al pie de
este documento aparecen.

(Fdos.) FELISA ROMAN VDA. DE MORENO

U. DE POLI
Firmado en presencia de:
(Fdos.) ANTONIO V. HERRERO
T. BARRETTO
("Acknowledged before Notary")
Exhibit D is a warehouse receipt issued by the warehouse of U. de Poli for 576 bales of tobacco. The
first paragraph of the receipt reads as follows:
Quedan depositados en estos almacenes por orden del Sr. U. de Poli la cantidad de
quinientos setenta y seis fardos de tabaco en rama segun marcas detalladas al margen, y
con arreglo a las condiciones siguientes:
In the left margin of the face of the receipts, U. de Poli certifies that he is the sole owner of the
merchandise therein described. The receipt is endorced in blank "Umberto de Poli;" it is not marked
"non-negotiable" or "not negotiable."
Exhibit B and C referred to in the stipulation are not material to the issues and do not appear in the
printed record.
Though Exhibit A in its paragraph (c) states that the tobacco should remain in the warehouse of U.
de Poli as a deposit until the price was paid, it appears clearly from the language of the exhibit as a
whole that it evidences a contract of sale and the recitals in order of the Court of First Instance,
dated January 18, 1921, which form part of the printed record, show that De Poli received from
Felisa Roman, under this contract, 2,777 bales of tobacco of the total value of P78,815.69, of which
he paid P15,000 in cash and executed four notes of P15,953.92 each for the balance. The sale
having been thus consummated, the only lien upon the tobacco which Felisa Roman can claim is a
vendor's lien.
The order appealed from is based upon the theory that the tobacco was transferred to the Asia
Banking Corporation as security for a loan and that as the transfer neither fulfilled the requirements
of the Civil Code for a pledge nor constituted a chattel mortgage under Act No. 1508, the vendor's
lien of Felisa Roman should be accorded preference over it.
It is quite evident that the court below failed to take into consideration the provisions of section 49 of
Act No. 2137 which reads:
Where a negotiable receipts has been issued for goods, no seller's lien or right of stoppage
in transitu shall defeat the rights of any purchaser for value in good faith to whom such
receipt has been negotiated, whether such negotiation be prior or subsequent to the
notification to the warehouseman who issued such receipt of the seller's claim to a lien or
right of stoppage in transitu. Nor shall the warehouseman be obliged to deliver or justified in

delivering the goods to an unpaid seller unless the receipt is first surrendered for
cancellation.
The term "purchaser" as used in the section quoted, includes mortgagee and pledgee. (See section
58 (a) of the same Act.)
In view of the foregoing provisions, there can be no doubt whatever that if the warehouse receipt in
question is negotiable, the vendor's lien of Felisa Roman cannot prevail against the rights of the Asia
Banking Corporation as the indorse of the receipt. The only question of importance to be determined
in this case is, therefore, whether the receipt before us is negotiable.
The matter is not entirely free from doubt. The receipt is not perfect: It recites that the merchandise is
deposited in the warehouse "por orden" instead of "a la orden" or "sujeto a la orden" of the depositor
and it contain 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.
We think, however, that it must be considered a negotiable receipt. A warehouse receipt, like any
other document, must be interpreted according to its evident intent (Civil Code, arts. 1281 et seq.)
and it is quite obvious that the deposit evidenced by the receipt in this case was intended to be
made subject to the order of the depositor and therefore negotiable. That the words "por orden" are
used instead of "a la orden" is very evidently merely a clerical or grammatical error. If any intelligent
meaning is to be attacked to the phrase "Quedan depositados en estos almacenes por orden del Sr.
U. de Poli" it must be held to mean "Quedan depositados en estos almacenes a la orden del Sr. U.
de Poli." The phrase must be construed to mean that U. de Poli was the person authorized to
endorse and deliver the receipts; any other interpretation would mean that no one had such power
and the clause, as well as the entire receipts, would be rendered nugatory.
Moreover, the endorsement in blank of the receipt in controversy together with its delivery by U. de
Poli to the appellant bank took place on the very of the issuance of the warehouse receipt, thereby
immediately demonstrating the intention of U. de Poli and of the appellant bank, by the employment
of the phrase "por orden del Sr. U. de Poli" to make the receipt negotiable and subject to the very
transfer which he then and there made by such endorsement in blank and delivery of the receipt to
the blank.
As hereinbefore stated, the receipt was not marked "non-negotiable." Under modern statutes the
negotiability of warehouse receipts has been enlarged, the statutes having the effect of making such
receipts negotiable unless marked "non-negotiable." (27 R. C. L., 967 and cases cited.)
Section 7 of the Uniform Warehouse Receipts Act, says:
A non-negotiable receipt shall have plainly placed upon its face by the warehouseman
issuing it 'non-negotiable,' 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.

This section shall not apply, however, to letters, memoranda, or written acknowledgments of
an informal character.
This section appears to give any warehouse receipt not marked "non-negotiable" 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, circumstances which admittedly
exist in the present case.
We therefore hold that the warehouse receipts in controversy was negotiable and that the rights of
the endorsee thereof, the appellant, are superior to the vendor's lien of the appellee and should be
given preference over the latter.
The order appealed from is therefore reversed without costs. So ordered.
Araullo, C.J., Malcolm, Avancea, Villamor, Johns and Romualdez, JJ., concur.