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G.R. No. 143772 DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, -versusPRUDENTIAL BANK, Respondent Development Bank of the Philippines (DBP) assails in this petition for review on certiorari under Rule 45 of the Rules of Court the December 14, 1999 decision[1] and the June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 45783. The challenged decision dismissed DBPs appeal and affirmed the February 12, 1991 decision of the Regional Trial Court of Makati, Branch 137 in Civil Case No. 88-931 in toto, while the impugned resolution denied DBPs motion for reconsideration for being pro forma. In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit with respondent Prudential Bank for US$498,000. This was in connection with its importation of 5,000 spindles for spinning machinery with drawing frame, simplex fly frame, ring spinning frame and various accessories, spare parts and tool gauge. These were released to Litex under covering trust receipts it executed in favor of Prudential Bank. Litex installed and used the items in its textile mill located in Montalban, Rizal.

Prudential Banks claim. On September 28, 1994, Prudential Bank provided DBP the requested documents. Two months later, Prudential Bank followed up the status of its claim. In a letter dated December 3, 1984, DBP informed Prudential Bank that its claim had been referred to DBPs legal department and instructed Prudential Bank to get in touch with its chief legal counsel. There being no concrete action on DBPs part, Prudential Bank, in a letter dated July 30, 1985, made a final demand on DBP for the turn-over of the contested articles or the payment of their value. Without the knowledge of Prudential Bank, however, DBP sold the Litex textile mill, as well as the machineries and equipments therein, to Lyon Textile Mills, Inc. (Lyon) on June 8, 1987. Since its demands remained unheeded, Prudential Bank filed a complaint for a sum of money with damages against DBP with the Regional Trial Court of Makati, Branch 137, on May 24, 1988. The complaint was docketed as Civil Case No. 88-931. On February 12, 1991, the trial court decided[2] in favor of Prudential Bank. Applying the provisions of PD 115, otherwise known as the Trust Receipts Law, it ruled: When PRUDENTIAL BANK released possession of the subject properties, over which it holds absolute title to LITEX upon the latters execution of the trust receipts, the latter was bound to hold said properties in trust for the former, and (a) to sell or otherwise dispose of the same and to turn over to PRUDENTIAL BANK the amount still owing; or (b) to return the goods if unsold. Since LITEX was allowed to sell the properties being claimed by PRUDENTIAL BANK, all the more was it authorized to mortgage the same, provided of course LITEX turns over to PRUDENTIAL BANK all amounts owing. When DBP, well aware of the status of the properties, acquired the same in the public auction, it was bound by the terms of the trust receipts of which LITEX was the entrustee. Simply stated, DBP held no better right than LITEX, and is thus bound to turn over whatever amount was due PRUDENTIAL BANK. Being a trustee ex maleficio of PRUDENTIAL BANK, DBP is necessarily liable therefor. In fact, DBP may well be considered as an agent of LITEX when the former sold the properties being claimed by PRUDENTIAL BANK, with the corresponding responsibility to turn over the proceeds of the same to PRUDENTIAL BANK.[3] (Citations omitted) The dispositive portion of the decision read: WHEREFORE, judgment is hereby rendered ordering defendant DEVELOPMENT BANK OF THE PHILIPPINES to pay plaintiff PRUDENTIAL BANK: a) P3,261,834.00, as actual damages, with interest thereon computed from 10 August 1985 until the entire amount shall have been fully paid; b) c) P50,000.00 as exemplary damages; and 10% of the total amount due as and for attorneys fees.

On October 10, 1980, DBP granted a foreign currency loan in the amount of US$4,807,551 to Litex. To secure the loan, Litex executed real estate and chattel mortgages on its plant site in Montalban, Rizal, including the buildings and other improvements, machineries and equipments there. Among the machineries and equipments mortgaged in favor of DBP were the articles covered by the trust receipts.

Sometime in June 1982, Prudential Bank learned about DBPs plan for the overall rehabilitation of Litex. In a July 14, 1982 letter, Prudential Bank notified DBP of its claim over the various items covered by the trust receipts which had been installe d and used by Litex in the textile mill. Prudential Bank informed DBP that it was the absolute and juridical owner of the said items and they were thus not part of the mortgaged assets that could be legally ceded to DBP. For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed on the real estate and chattel mortgages, including the articles claimed by Prudential Bank. During the foreclosure sale held on April 19, 1983, DBP acquired the foreclosed properties as the highest bidder. Subsequently, DBP caused to be published in the September 2, 1984 issue of the Times Journal an invitation to bid in the public sale to be held on September 10, 1984. It called on interested parties to submit bids for the sale of the textile mill formerly owned by Litex, the land on which it was built, as well as the machineries and equipments therein. Learning of the intended public auction, Prudential Bank wrote a letter dated September 6, 1984 to DBP reasserting its claim over the items covered by trust receipts in its name and advising DBP not to include them in the auction. It also demanded the turn-over of the articles or alternatively, the payment of their value. An exchange of correspondences ensued between Prudential Bank and DBP. In reply to Prudential Banks September 6, 1984 letter, DBP requested documents to enable it to evaluate

SO ORDERED. Aggrieved, DBP filed an appeal with the Court of Appeals. However, the appellate court dismissed the appeal and affirmed the decision of the trial court in toto. It applied the provisions of PD 115 and held that ownership over the contested articles belonged to Prudential Bank as entrustor, not to Litex. Consequently, even if Litex mortgaged the items to DBP and the latter foreclosed on such mortgage, DBP was duty-bound to turn

over the proceeds to Prudential Bank, being the party that advanced the payment for them. On DBPs argument that the disputed articles were not proper objects of a trust receipt agreement, the Court of Appeals ruled that the items were part of the trust agreement entered into by and between Prudential Bank and Litex. Since the agreement was not contrary to law, morals, public policy, customs and good order, it was binding on the parties. Moreover, the appellate court found that DBP was not a mortgagee in good faith. It also upheld the finding of the trial court that DBP was a trustee ex maleficio of Prudential Bank over the articles covered by the trust receipts. DBP filed a motion for reconsideration but the appellate court denied it for being pro forma. Hence, this petition. Trust receipt transactions are governed by the provisions of PD 115 which defines such a transaction as follows: Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latters execution and delivery to the entruster of a signed document called a trust receipt wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following: 1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or tranship or otherwise deal with them in a manner preliminary or necessary to their sale; or 2. In the case of instruments, (a) to sell or procure their sale or exchange; or (b) to deliver them to a principal; or (c) to effect the consummation of some transactions involving delivery to a depository or register; or (d) to effect their presentation, collection or renewal. xxx xxx xxx

selling or otherwise disposing of them and (2) to turn over to the entruster either the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt, or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt. In the case of goods, they may also be released for other purposes substantially equivalent to (a) their sale or the procurement of their sale; or (b) their manufacture or processing with the purpose of ultimate sale, in which case the entruster retains his title over the said goods whether in their original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) the loading, unloading, shipment or transshipment or otherwise dealing with them in a manner preliminary or necessary to their sale.[4] Thus, in a trust receipt transaction, the release of the goods to the entrustee, on his execution of a trust receipt, is essentially for the purpose of their sale or is necessarily connected with their ultimate or subsequent sale. Here, Litex was not engaged in the business of selling spinning machinery, its accessories and spare parts but in manufacturing and producing textile and various kinds of fabric. The articles were not released to Litex to be sold. Nor was the transfer of possession intended to be a preliminary step for the said goods to be ultimately or subsequently sold. Instead, the contemporaneous and subsequent acts of both Litex and Prudential Bank showed that the imported articles were released to Litex to be installed in its textile mill and used in its business. DBP itself was aware of this. To support its assertion that the contested articles were excluded from goods that could be covered by a trust receipt, it contended: First. That the chattels in controversy were procured by DBPs mortgagor Lirag Textile Mills (LITEX) for the exclusive use of its textile mills. They were not procured (a) to sell or otherwise procure their sale; (b) to manufacture or process the goods with the purpose of ultimate sale.[5] (emphasis supplied) Hence, the transactions between Litex and Prudential Bank were allegedly not trust receipt transactions within the meaning of PD 115. It follows that, contrary to the decisions of the trial court and the appellate court, the transactions were not governed by the Trust Receipts Law. We disagree. The various agreements between Prudential Bank and Litex commonly denominated as trust receipts were valid. As the Court of Appeals correctly ruled, their provisions did not contravene the law, morals, good customs, public order or public policy. The agreements uniformly provided: Received, upon the Trust hereinafter mentioned from the PRUDENTIAL BANK (hereinafter referred to as BANK) the following goods and merchandise, the property of said BANK specified in the bill of lading as follows: Amount of Bill Description of Security Marks & Nos. Vessel

In a trust receipt transaction, the goods are released by the entruster (who owns or holds absolute title or security interests over the said goods) to the entrustee on the latters execution and delivery to the entruster of a trust receipt. The trust receipt evidences the absolute title or security interest of the entruster over the goods. As a consequence of the release of the goods and the execution of the trust receipt, a two-fold obligation is imposed on the entrustee, namely: (1) to hold the designated goods, documents or instruments in trust for the purpose of

and in consideration thereof, I/We hereby agree to hold said goods in trust for the BANK and as its property with liberty to sell the same for its account but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds thereof) either by way of conditional sale, pledge, or otherwise. xxx xxx x x x[6] (Emphasis supplied)

attempt to prevent Prudential Bank from asserting its rights. It smacked of bad faith, if not deceit. Thus, the award of exemplary damages was in order. Due to the award of exemplary damages, the grant of attorneys fees was proper.[15] DBPs assertion that both the trial and appellate courts failed to address the issue of prescription is of no moment. Its claim that, under Article 1146 (1) of the Civil Code, Prudential Banks cause of action had prescribed as it should be reckoned from October 10, 1980, the day the mortgage was registered, is not correct. The written extra-judicial demand by the creditor interrupted the prescription of action.[16]Hence, the four-year prescriptive period which DBP insists should be counted from the registration of the mortgage was interrupted when Prudential Bank wrote the extra-judicial demands for the turn over of the articles or their value. In particular, the last demand letter sent by Prudential Bank was dated July 30, 1988 and this was received by DBP the following day. Thus, contrary to DBPs claim, Prudential Banks right to enforce its action had not yet prescribed when it filed the complaint on May 24, 1988. WHEREFORE, the petition is hereby DENIED. The December 14, 1999 decision and June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 45783 are AFFIRMED. --ANTHONY L. NG Vs PEOPLE OF THE PHILIPPINES, DECISION This is a Petition for Review on Certiorari under Rule 45 seeking to reverse and set aside the August 29, 2003 Decision[1] and July 25, 2006 Resolution of the Court of Appeals (CA) in CA-G.R. CR No. 25525, which affirmed the Decision[2] of the Regional Trial Court (RTC), Branch 95 in Quezon City, in Criminal Case No. Q-99-85133 for Estafa under Article 315, paragraph 1(b) of the Revised Penal Code (RPC) in relation to Section 3 of Presidential Decree No. (PD) 115 or the Trust Receipts Law. The Facts Sometime in the early part of 1997, petitioner Anthony Ng, then engaged in the business of building and fabricating telecommunication towers under the trade name Capitol Blacksmith and Builders, applied for a credit line of PhP 3,000,000 with Asiatrust Development Bank, Inc. (Asiatrust). In support of Asiatrusts credit investigation, petitioner voluntarily submitted the following documents: (1) the contracts he had with Islacom, Smart, and Infocom; (2) the list of projects wherein he was commissioned by the said telecommunication companies to build several steel towers; and (3) the collectible amounts he has with the said companies.[3]

The articles were owned by Prudential Bank and they were only held by Litex in trust. While it was allowed to sell the items, Litex had no authority to dispose of them or any part thereof or their proceeds through conditional sale, pledge or any other means. Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, it is essential that the pledgor or mortgagor should be the absolute owner of the thing pledged or mortgaged. Article 2085 (3) further mandates that the person constituting the pledge or mortgage must have the free disposal of his property, and in the absence thereof, that he be legally authorized for the purpose. Litex had neither absolute ownership, free disposal nor the authority to freely dispose of the articles. Litex could not have subjected them to a chattel mortgage. Their inclusion in the mortgage was void[7]and had no legal effect.[8] There being no valid mortgage, there could also be no valid foreclosure or valid auction sale.[9] Thus, DBP could not be considered either as a mortgagee or as a purchaser in good faith.[10] No one can transfer a right to another greater than what he himself has.[11] Nemo dat quod non habet. Hence, Litex could not transfer a right that it did not have over the disputed items. Corollarily, DBP could not acquire a right greater than what its predecessor-in-interest had. The spring cannot rise higher than its source.[12] DBP merely stepped into the shoes of Litex as trustee of the imported articles with an obligation to pay their value or to return them on Prudential Banks demand. By its failure to pay or return them despite Prudential Banks repeated demands and by selling them to Lyon without Prudential Banks knowledge and conformity, DBP became a trustee ex maleficio. On the matter of actual damages adjudged by the trial court and affirmed by the Court of Appeals, DBP wants this Court to review the evidence presented during the trial and to reverse the factual findings of the trial court. This Court is, however, not a trier of facts and it is not its function to analyze or weigh evidence anew.[13] The rule is that factual findings of the trial court, when adopted and confirmed by the CA, are binding and conclusive on this Court and generally will not be reviewed on appeal.[14] While there are recognized exceptions to this rule, none of the established exceptions finds application here. With regard to the imposition of exemplary damages, the appellate court agreed with the trial court that the requirements for the award thereof had been sufficiently established. Prudential Banks entitlement to compensatory damages was likewise amply proven. It was also shown that DBP was aware of Prudential Banks claim as early as July, 1982. However, it ignored the latters demand, included the disputed articles in the mortgage foreclosure and caused their sale in a public auction held on April 19, 1983 where it was declared as the highest bidder. Thereafter, in the series of communications between them, DBP gave Prudential Bank the false impression that its claim was still being evaluated. Without acting on Prudential Banks plea, DBP included the contested articles among the properties it sold to Lyon in June, 1987. The trial court found that this chain of events showed DBPs fraudulent

On May 30, 1997, Asiatrust approved petitioners loan application. Petitioner was then required to sign several documents, among which are the Credit Line Agreement, Application and Agreement for Irrevocable L/C, Trust Receipt Agreements,[4] and Promissory Notes. Though the Promissory Notes matured on September 18, 1997, the two (2) aforementioned Trust Receipt Agreements did not bear any maturity dates as they were left unfilled or in blank by Asiatrust.[5]

After petitioner received the goods, consisting of chemicals and metal plates from his suppliers, he utilized them to fabricate the communication towers ordered from him by his clients which were installed in three project sites, namely: Isabel, Leyte; Panabo, Davao; and Tongonan.

to issue six (6) postdated checks. Petitioner, in good faith, tried to comply by issuing two or three checks, which were deposited and made good. The remaining checks, however, were not deposited as the Compromise Agreement did not push through.

As petitioner realized difficulty in collecting from his client Islacom, he failed to pay his loan to Asiatrust. Asiatrust then conducted a surprise ocular inspection of petitioners business through Villarva S. Linga, Asiatrusts representative appraiser. Linga thereafter reported to Asiatrust that he found that approximately 97% of the subject goods of the Trust Receipts were sold-out and that only 3 % of the goods pertaining to PN No. 1963 remained. Asiatrust then endorsed petitioners account to its Account Management Division for the possible restructuring of his loan. The parties thereafter held a series of conferences to work out the problem and to determine a way for petitioner to pay his debts. However, efforts towards a settlement failed to be reached. On March 16, 1999, Remedial Account Officer Ma. Girlie C. Bernardez filed a Complaint-Affidavit before the Office of the City Prosecutor of Quezon City. Consequently, on September 12, 1999, an Information for Estafa, as defined and penalized under Art. 315, par. 1(b) of the RPC in relation to Sec. 3, PD 115 or the Trust Receipts Law, was filed with the RTC. The said Information reads: That on or about the 30th day of May 1997, in Quezon City, Philippines, the above-named petitioner, did then and there willfully, unlawfully, and feloniously defraud Ma. Girlie C. Bernardez by entering into a Trust Receipt Agreement with said complainant whereby said petitioner as entrustee received in trust from the said complainant various chemicals in the total sum of P4.5 million with the obligation to hold the said chemicals in trust as property of the entruster with the right to sell the same for cash and to remit the proceeds thereof to the entruster, or to return the said chemicals if unsold; but said petitioner once in possession of the same, contrary to his aforesaid obligation under the trust receipt agreement with intent to defraud did then and there misappropriated, misapplied and converted the said amount to his own personal use and benefit and despite repeated demands made upon him, said petitioner refused and failed and still refuses and fails to make good of his obligation, to the damage and prejudice of the said Ma. Girlie C. Bernardez in the amount of P2,971,650.00, Philippine Currency.

For his defense, petitioner argued that: (1) the loan was granted as his working capital and that the Trust Receipt Agreements he signed with Asiatrust were merely preconditions for the grant and approval of his loan; (2) the Trust Receipt Agreement corresponding to Letter of Credit No. 1963 and the Trust Receipt Agreement corresponding to Letter of Credit No. 1964 were both contracts of adhesion, since the stipulations found in the documents were prepared by Asiatrust in fine print; (3) unfortunately for petitioner, his contract worth PhP 18,000,000 with Islacom was not yet paid since there was a squabble as to the real ownership of the latters company, but Asiatrust was aware of petitioners receivables which were more than sufficient to cover the obligation as shown in the various Project Listings with Islacom, Smart Communications, and Infocom; (4) prior to the Islacom problem, he had been faithfully paying his obligation to Asiatrust as shown in Official Receipt Nos. 549001, 549002, 565558, 577198, 577199, and 594986,[6] thus debunking Asiatrusts claim of fraud and bad faith against him; (5) during the pendency of this case, petitioner even attempted to settle his obligations as evidenced by the two United Coconut Planters Bank Checks[7] he issued in favor of Asiatrust; and (6) he had already paid PhP 1.8 million out of the PhP 2.971 million he owed as per Statement of Account dated January 26, 2000 Ruling of the Trial Court After trial on the merits, the RTC, on May 29, 2001, rendered a Decision, finding petitioner guilty of the crime of Estafa. Thefallo of the Decision reads as follows: WHEREFORE, judgment is hereby rendered finding the petitioner, Anthony L. Ng GUILTY beyond reasonable doubt for the crime of Estafa defined in and penalized by Article 315, paragraph 1(b) of the Revised Penal Code in relation to Section 3 of Presidential Decree 115, otherwise known as the Trust Receipts Law, and is hereby sentenced to suffer the indeterminate penalty of from six (6) years, eight (8) months, and twenty one (21) days of prision mayor, minimum, as the minimum penalty, to twenty (20) years of reclusion temporal maximum, as the maximum penalty.

CONTRARY TO LAW.

The petitioner is further ordered to return to the Asiatrust Development Bank Inc. the amount of Two Million, Nine Hundred Seventy One and Six Hundred Fifty Pesos (P2,971,650.00) with legal rate of interest computed from the filing of the information on September 21,1999 until the amount is fully paid. IT IS SO ORDERED.

Upon arraignment, petitioner pleaded not guilty to the charges. Thereafter, a full-blown trial ensued.

During the pendency of the abovementioned case, conferences between petitioner and Asiatrusts Remedial Account Officer, Daniel Yap, were held. Afterward, a Compromise Agreement was drafted by Asiatrust. One of the requirements of the Compromise Agreement was for petitioner

In rendering its Decision, the trial court held that petitioner could not simply argue that the contracts he had entered into with Asiatrust were void as they were contracts of adhesion. It reasoned that petitioner is presumed to have read and understood and is, therefore, bound by the provisions of the Letters of Credit and Trust Receipts. It said that it was clear that Asiatrust had furnished petitioner with a Statement of Account enumerating therein the precise figures of the outstanding balance, which he failed to pay along with the computation of other fees and charges; thus, Asiatrust did not violate Republic

Act No. 3765 (Truth in Lending Act). Finally, the trial court declared that petitioner, being the entrustee stated in the Trust Receipts issued by Asiatrust, is thus obliged to hold the goods in trust for the entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust receipts; otherwise, he is obliged to return the goods in the event of nonsale or upon demand of the entruster, failing thus, he evidently violated the Trust Receipts Law. Ruling of the Appellate Court Petitioner then elevated the case to the CA by filing a Notice of Appeal on August 6, 2001. In his Appellants Brief dated March 25, 2002, petitioner argued that the court a quo erred: (1) in changing the name of the offended party without the benefit of an amendment of the Information which violates his right to be informed of the nature and cause of accusation against him; (2) in making a finding of facts not in accord with that actually proved in the trial and/or by the evidence provided; (3) in not considering the material facts which if taken into account would have resulted in his acquittal; (4) in being biased, hostile, and prejudiced against him; and (5) in considering the prosecutions evidence which did not prove the guilt of petitioner beyond reasonable doubt. On August 29, 2003, the CA rendered a Decision affirming that of the RTC, the fallo of which reads:

Concerning the alleged bias, hostility, and prejudice of the RTC against petitioner, the CA said that petitioner failed to present any substantial proof to support the aforementioned allegations against the RTC. After the receipt of the CA Decision, petitioner moved for its reconsideration, which was denied by the CA in its Resolution dated July 25, 2006. Thereafter, petitioner filed this Petition for Review on Certiorari. In his Memorandum, he raised the following issues: Issues: 1. The prosecution failed to adduce evidence beyond a reasonable doubt to satisfy the 2nd essential element that there was misappropriation or conversion of subject money or property by petitioner. 2. The state was unable to prove the 3rd essential element of the crime that the alleged misappropriation or conversion is to the prejudice of the real offended property. 3. The absence of a demand (4th essential element) on petitioner necessarily results to the dismissal of the criminal case. The Courts Ruling We find the petition to be meritorious.

WHEREFORE, the foregoing considered, the instant appeal is DENIED. The decision of the Regional Trial Court of Quezon City, Branch 95 dated May 29, 2001 is AFFIRMED. SO ORDERED. The CA held that during the course of the trial, petitioner knew that the complainant Bernardez and the other co-witnesses are all employees of Asiatrust and that she is suing in behalf of the bank. Since petitioner transacted with the same employees for the issuance of the subject Trust Receipts, he cannot feign ignorance that Asiatrust is not the offended party in the instant case. The CA further stated that the change in the name of the complainant will not prejudice and alter the fact that petitioner was being charged with the crime of Estafa in relation to the Trust Receipts Law, since the information clearly set forth the essential elements of the crime charged, and the constitutional right of petitioner to be informed of the nature and cause of his accusations is not violated.[8] As to the alleged error in the appreciation of facts by the trial court, the CA stated that it was undisputed that petitioner entered into a trust receipt agreement with Asiatrust and he failed to pay the bank his obligation when it became due. According to the CA, the fact that petitioner acted without malice or fraud in entering into the transactions has no bearing, since the offense is punished asmalum prohibitum regardless of the existence of intent or malice; the mere failure to deliver the proceeds of the sale or the goods if not sold constitutes the criminal offense. With regard to the failure of the RTC to consider the fact that petitioners outstanding receivables are sufficient to cover his indebtedness and that no written demand was made upon him hence his obligation has not yet become due and demandable, the CA stated that the mere query as to the whereabouts of the goods and/or money is tantamount to a demand.[9]

Essentially, the issues raised by petitioner can be summed up into onewhether or not petitioner is liable for Estafa under Art. 315, par. 1(b) of the RPC in relation to PD 115. It is a well-recognized principle that factual findings of the trial court are entitled to great weight and respect by this Court, more so when they are affirmed by the appellate court. However, the rule is not without exceptions, such as: (1) when the conclusion is a finding grounded entirely on speculations, surmises, and conjectures; (2) the inferences made are manifestly mistaken; (3) there is grave abuse of discretion; and (4) the judgment is based on misapprehension of facts or premised on the absence of evidence on record.[10] Especially in criminal cases where the accused stands to lose his liberty by virtue of his conviction, the Court must be satisfied that the factual findings and conclusions of the lower courts leading to his conviction must satisfy the standard of proof beyond reasonable doubt. In the case at bar, petitioner was charged with Estafa under Art. 315, par. 1(b) of the RPC in relation to PD 115. The RPC defines Estafa as: ART. 315. Swindling (estafa).Any person who shall defraud another by any of the means mentioned hereinbelow x x x 1. a. With unfaithfulness or abuse of confidence, namely: xxx

b. By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property x x x.[11]

Based on the definition above, the essential elements of Estafa are: (1) that money, goods or other personal property is received by the offender in trust or on commission, or for administration, or under any obligation involving the duty to make delivery of or to return it; (2) that there be misappropriation or conversion of such money or property by the offender, or denial on his part of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice of another; and (4) there is demand by the offended party to the offender.[12] Likewise, Estafa can also be committed in what is called a trust receipt transaction under PD 115, which is defined as Section 4. What constitutes a trust receipts transaction.A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latters execution and delivery to the entruster of a signed document called a trust receipt wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following: 1. In the case of goods or documents: (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied full with his obligation under the trust receipt; or (c) to load, unload, ship or transship or otherwise deal with them in a manner preliminary or necessary to their sale; or 2. In the case of instruments: (a) to sell or procure their sale or exchange; or (b) to deliver them to a principal; or (c) to effect the consummation of some transactions involving delivery to a depository or register; or (d) to effect their presentation, collection or renewal. The sale of good, documents or instruments by a person in the business of selling goods, documents or instruments for profit who, at the outset of transaction, has, as against the buyer, general property rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of this Decree. In other words, a trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the price of the sale, or if the merchandise is not sold, to return the merchandise to the entruster. There are, therefore, two obligations in a trust receipt transaction: the first refers to money received under the obligation involving the duty to turn it over (entregarla) to the owner of the merchandise sold, while

the second refers to the merchandise received under the obligation to return it (devolvera) to the owner.[13] A violation of any of these undertakings constitutes Estafa defined under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115, viz: Section 13. Penalty Clause.The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. x x x (Emphasis supplied.)

A thorough examination of the facts obtaining in the instant case, however, reveals that the transaction between petitioner and Asiatrust is not a trust receipt transaction but one of simple loan. PD 115 Does Not Apply It must be remembered that petitioner was transparent to Asiatrust from the very beginning that the subject goods were not being held for sale but were to be used for the fabrication of steel communication towers in accordance with his contracts with Islacom, Smart, and Infocom. In these contracts, he was commissioned to build, out of the materials received, steel communication towers, not to sell them. The true nature of a trust receipt transaction can be found in the whereas clause of PD 115 which states that a trust receipt is to be utilized as a convenient business device to assist importers and merchants solve their financing problems. Obviously, the State, in enacting the law, sought to find a way to assist importers and merchants in their financing in order to encourage commerce in the Philippines. As stressed in Samo v. People,[14] a trust receipt is considered a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased. Similarly, American Jurisprudence demonstrates that trust receipt transactions always refer to a method of financing importations or financing sales.[15] The principle is of course not limited in its application to financing importations, since the principle is equally applicable to domestic transactions.[16] Regardless of whether the transaction is foreign or domestic, it is important to note that the transactions discussed in relation to trust receipts mainly involved sales. Following the precept of the law, such transactions affect situations wherein the entruster, who owns or holds absolute title or security interests over specified goods, documents or instruments, releases the subject goods to the possession of the entrustee. The release of such goods to the entrustee is conditioned upon his execution and delivery to the entruster of a trust receipt wherein the former binds himself to hold the specific goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods,

documents or instruments with the obligation to turn over to the entruster the proceeds to the extent of the amount owing to the entruster or the goods, documents or instruments themselves if they are unsold. Similarly, we held in State Investment House v. CA, et al. that the entruster is entitled only to the proceeds derived from the sale of goods released under a trust receipt to the entrustee.[17]

trust. They were also not intended for sale and neither did petitioner have the duty to return them. They were only intended for use in the fabrication of steel communication towers. No Misappropriation of Goods or Proceeds The second element of Estafa requires that there be misappropriation or conversion of such money or property by the offender, or denial on his part of such receipt. This is the very essence of Estafa under Art. 315, par. 1(b). The words convert and misappropriated connote an act of using or disposing of anothers property as if it were ones own, or of devoting it to a purpose or use different from that agreed upon. To misappropriate for ones own use includes not only conversion to ones personal advantage, but also every attempt to dispose of the property of another without a right.[18] Petitioner argues that there was no misappropriation or conversion on his part, because his liability for the amount of the goods subject of the trust receipts arises and becomes due only upon receipt of the proceeds of the sale and not prior to the receipt of the full price of the goods. Petitioner is correct. Thus, assuming arguendo that the provisions of PD 115 apply, petitioner is not liable for Estafa because Sec. 13 of PD 115 provides that an entrustee is only liable for Estafa when he fails to turn over the proceeds of the sale of the goods x x x covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt x x x in accordance with the terms of the trust receipt. The trust receipt entered into between Asiatrust and petitioner states: In case of sale I/we agree to hand the proceeds as soon as received to the BANK to apply against the relative acceptance (as described above) and for the payment of any other indebtedness of mine/ours to ASIATRUST DEVELOPMENT BANK.[19] (Emphasis supplied.) Clearly, petitioner was only obligated to turn over the proceeds as soon as he received payment. However, the evidence reveals that petitioner experienced difficulties in collecting payments from his clients for the communication towers. Despite this fact, petitioner endeavored to pay his indebtedness to Asiatrust, which payments during the period from September 1997 to July 1998 total approximately PhP 1,500,000. Thus, absent proof that the proceeds have been actually and fully received by petitioner, his obligation to turn over the same to Asiatrust never arose. What is more, under the Trust Receipt Agreement itself, no date of maturity was stipulated. The provision left blank by Asiatrust is as follows: x x x and in consideration thereof, I/we hereby agree to hold said goods in Trust for the said Bank and as its property with liberty to sell the same for its account within ________ days from the date of execution of the Trust Receipt x x x[20] In fact, Asiatrust purposely left the space designated for the date blank, an action which in ordinary banking transactions would be noted as highly irregular. Hence, the only way for the obligation to mature was for Asiatrust to demand from petitioner to pay the obligation, which it never did.

Considering that the goods in this case were never intended for sale but for use in the fabrication of steel communication towers, the trial court erred in ruling that the agreement is a trust receipt transaction.

In applying the provisions of PD 115, the trial court relied on the Memorandum of Asiatrusts appraiser, Linga, who stated that the goods have been sold by petitioner and that only 3% of the goods remained in the warehouse where it was previously stored. But for reasons known only to the trial court, the latter did not give weight to the testimony of Linga when he testified that he merely presumed that the goods were sold, viz: COURT (to the witness) Q So, in other words, when the goods were not there anymore. You presumed that, that is already sold? A Yes, your Honor

Undoubtedly, in his testimony, Linga showed that he had no real personal knowledge or proof of the fact that the goods were indeed sold. He did not notify petitioner about the inspection nor did he talk to or inquire with petitioner regarding the whereabouts of the subject goods. Neither did he confirm with petitioner if the subject goods were in fact sold. Therefore, the Memorandum of Linga, which was based only on his presumption and not any actual personal knowledge, should not have been used by the trial court to prove that the goods have in fact been sold. At the very least, it could only show that the goods were not in the warehouse. Having established the inapplicability of PD 115, this Court finds that petitioners liability is only limited to the satisfaction of his obligation from the loan. The real intent of the parties was simply to enter into a simple loan agreement. To emphasize, the Trust Receipts Law was created to to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased. Since Asiatrust knew that petitioner was neither an importer nor retail dealer, it should have known that the said agreement could not possibly apply to petitioner. Moreover, this Court finds that petitioner is not liable for Estafa both under the RPC and PD 115. Goods Were Not Received in Trust The first element of Estafa under Art. 315, par. 1(b) of the RPC requires that the money, goods or other personal property must be received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return it. But as we already discussed, the goods received by petitioner were not held in

Again, it also makes the Court wonder as to why Asiatrust decided to leave the provisions for the maturity dates in the Trust Receipt agreements in blank, since those dates are elemental part of the loan. But then, as can be gleaned from the records of this case, Asiatrust also knew that the capacity of petitioner to pay for his loan also hinges upon the latters receivables from Islacom, Smart, and Infocom where he had ongoing and future projects for fabrication and installation of steel communication towers and not from the sale of said goods. Being a bank, Asiatrust acted inappropriately when it left such a sensitive bank instrument with a void circumstance on an elementary but vital feature of each and every loan transaction, that is, the maturity dates. Without stating the maturity dates, it was impossible for petitioner to determine when the loan will be due. Moreover, Asiatrust was aware that petitioner was not engaged in selling the subject goods and that petitioner will use them for the fabrication and installation of communication towers. Before granting petitioner the credit line, as aforementioned, Asiatrust conducted an investigation, which showed that petitioner fabricated and installed communication towers for well-known communication companies to be installed at designated project sites. In fine, there was no abuse of confidence to speak of nor was there any intention to convert the subject goods for another purpose, since petitioner did not withhold the fact that they were to be used to fabricate steel communication towers to Asiatrust. Hence, no malice or abuse of confidence and misappropriation occurred in this instance due to Asiatrusts knowledge of the facts. Furthermore, Asiatrust was informed at the time of petitioners application for the loan that the payment for the loan would be derived from the collectibles of his clients. Petitioner informed Asiatrust that he was having extreme difficulties in collecting from Islacom the full contracted price of the towers. Thus, the duty of petitioner to remit the proceeds of the goods has not yet arisen since he has yet to receive proceeds of the goods. Again, petitioner could not be said to have misappropriated or converted the proceeds of the transaction since he has not yet received the proceeds from his client, Islacom. This Court also takes judicial notice of the fact that petitioner has fully paid his obligation to Asiatrust, making the claim for damage and prejudice of Asiatrust baseless and unfounded. Given that the acceptance of payment by Asiatrust necessarily extinguished petitioners obligation, then there is no longer any obligation on petitioners part to speak of, thus precluding Asiatrust from claiming any damage. This is evidenced by Asiatrusts Affidavit of Desistance[21] acknowledging full payment of the loan. Reasonable Doubt Exists In the final analysis, the prosecution failed to prove beyond reasonable doubt that petitioner was guilty of Estafa under Art. 315, par. 1(b) of the RPC in relation to the pertinent provision of PD 115 or the Trust Receipts Law; thus, his liability should only be civil in nature. While petitioner admits to his civil liability to Asiatrust, he nevertheless does not have criminal liability. It is a wellestablished principle that person is presumed innocent until proved guilty. To overcome the presumption, his guilt must be shown by proof beyond reasonable doubt. Thus, we held in People v. Mariano[22] that while the principle does not connote absolute certainty, it means the degree of proof which produces moral certainty in an unprejudiced mind of the culpability of the

accused. Such proof should convince and satisfy the reason and conscience of those who are to act upon it that the accused is in fact guilty. The prosecution, in this instant case, failed to rebut the constitutional innocence of petitioner and thus the latter should be acquitted. At this point, the ruling of this Court in Colinares v. Court of Appeals is very apt, thus: The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation x x x.[23] Such is the situation in this case. Asiatrusts intention became more evident when, on March 30, 2009, it, along with petitioner, filed their Joint Motion for Leave to File and Admit Attached Affidavit of Desistance to qualify the Affidavit of Desistance executed by Felino H. Esquivas, Jr., attorney-in-fact of the Board of Asiatrust, which acknowledged the full payment of the obligation of the petitioner and the successful mediation between the parties. From the foregoing considerations, we deem it unnecessary to discuss and rule upon the other issues raised in the appeal. WHEREFORE, the CA Decision dated August 29, 2003 affirming the RTC Decision dated May 29, 2001 is SET ASIDE. Petitioner ANTHONY L. NG is hereby ACQUITTED of the charge of violation of Art. 315, par. 1(b) of the RPC in relation to the pertinent provision of PD 115. ----G.R. No. 159622 July 30, 2004

LANDL & COMPANY (PHIL.) INC., PERCIVAL G. LLABAN and MANUEL P. LUCENTE, petitioners, vs. METROPOLITAN BANK & TRUST COMPANY, respondent. At issue in this petition for review on certiorari is whether or not, in a trust receipt transaction, an entruster which had taken actual and juridical possession of the goods covered by the trust receipt may subsequently avail of the right to demand from the entrustee the deficiency of the amount covered by the trust receipt. As correctly appreciated by the Court of Appeals, the undisputed facts of this case are as follows: Respondent Metropolitan Bank and Trust Company (Metrobank) filed a complaint for sum of money against Landl and Company (Phil.) Inc. (Landl) and its directors, Percival G. Llaban and Manuel P. Lucente before the Regional Trial Court of Cebu City, Branch 19, docketed as Civil Case No. CEB-4895. Respondent alleged that petitioner corporation is engaged in the business of selling imported welding rods and alloys. On June 17, 1983, it opened Commercial Letter of Credit No. 4998 with respondent bank, in the amount of US$19,606.77, which was equivalent to P218,733.92 in Philippine currency at the time the transaction was consummated. The letter of credit was opened to purchase various welding rods and electrodes from Perma Alloys, Inc., New York, U.S.A., as evidenced by a ProForma Invoice dated March 10, 1983. Petitioner corporation put

up a marginal deposit of P50,414.00 from the proceeds of a separate clean loan. As an additional security, and as a condition for the approval of petitioner corporation's application for the opening of the commercial letter of credit, respondent bank required petitioners Percival G. Llaban and Manuel P. Lucente to execute a Continuing Suretyship Agreement to the extent of P400,000.00, excluding interest, in favor of respondent bank. Petitioner Lucente also executed a Deed of Assignment in the amount of P35,000.00 in favor of respondent bank to cover the amount of petitioner corporation's obligation to the bank. Upon compliance with these requisites, respondent bank opened an irrevocable letter of credit for the petitioner corporation. To secure the indebtedness of petitioner corporation, respondent bank required the execution of a Trust Receipt in an amount equivalent to the letter of credit, on the condition that petitioner corporation would hold the goods in trust for respondent bank, with the right to sell the goods and the obligation to turn over to respondent bank the proceeds of the sale, if any. If the goods remained unsold, petitioner corporation had the further obligation to return them to respondent bank on or before November 23, 1983. Upon arrival of the goods in the Philippines, petitioner corporation took possession and custody thereof. On November 23, 1983, the maturity date of the trust receipt, petitioner corporation defaulted in the payment of its obligation to respondent bank and failed to turn over the goods to the latter. On July 24, 1984, respondent bank demanded that petitioners, as entrustees, turn over the goods subject of the trust receipt. On September 24, 1984, petitioners turned over the subject goods to the respondent bank. On July 31, 1985, in the presence of representatives of the petitioners and respondent bank, the goods were sold at public auction. The goods were sold for P30,000.00 to respondent bank as the highest bidder. The proceeds of the auction sale were insufficient to completely satisfy petitioners' outstanding obligation to respondent bank, notwithstanding the application of the time deposit account of petitioner Lucente. Accordingly, respondent bank demanded that petitioners pay the remaining balance of their obligation. After petitioners failed to do so, respondent bank instituted the instant case to collect the said deficiency. On March 31, 1997, after trial on the merits, the trial court rendered a decision, the dispositive portion of which reads: WHEREFORE, foregoing premises considered, Judgment is hereby rendered in favor of the plaintiff and against the defendant by (1) ordering the defendant to pay jointly and severally to the plaintiff the sum of P292,172.23 representing the defendant's obligation, as of April 17, 1986; (2) to pay the interest at the rate of 19% per annum to be reckoned from April 18, 1986 until [the] obligation is fully paid; (3) to pay service charge at the rate of 2% per annum starting April 18, 1986; (4) to pay the sum equivalent to 10% per annum of the total amount due collectible by way of Attorney's Fees; (5) to pay Litigation Expenses of P3,000.00 and to pay the cost of the suit; and (6) to pay penalty charge of 12% per annum. SO ORDERED.1 Petitioners appealed to the Court of Appeals, raising the issues of: (1) whether or not respondent bank has the right to recover

any deficiency after it has retained possession of and subsequently effected a public auction sale of the goods covered by the trust receipt; (2) whether or not respondent bank is entitled to the amount of P3,000.00 as and for litigation expenses and costs of the suit; and (3) whether or not respondent bank is entitled to the award of attorney's fees. On February 13, 2003, the Court of Appeals rendered a decision affirming in toto the decision of the trial court.2 Hence, this petition for review on the following assignment of errors: I. THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE TRIAL COURT'S RULING THAT RESPONDENT HAD THE RIGHT TO CLAIM THE DEFICIENCY FROM PETITIONERS NOTWITHSTANDING THE FACT THAT THE GOODS COVERED BY THE TRUST RECEIPT WERE FULLY TURNED OVER TO RESPONDENT. II. THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE TRIAL COURT'S PATENTLY ERRONEOUS AWARD OF PRINCIPAL OBLIGATION, INTEREST, ATTORNEY'S FEES, AND PENALTY AGAINST THE PETITIONERS.3 The instant petition is partly meritorious. The resolution of the first assigned error hinges on the proper interpretation of Section 7 of Presidential Decree No. 115, or the Trust Receipts Law, which reads: Sec. 7. Rights of the entruster. - The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all other rights conferred on him in the trust receipt provided such are not contrary to the provisions of this Decree. The entruster may cancel the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee, and the entruster in possession of the goods, documents or instruments may, on or after default, give notice to the entrustee of the intention to sell, and may, not less than five days after serving or sending of such notice, sell the goods, documents or instruments at public or private sale, and the entruster may, at a public sale, become a purchaser. The proceeds of any such sale, whether public or private, shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the entrustee's indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency. Notice of sale shall be deemed sufficiently given if in writing, and either personally served on the entrustee or sent by post-paid ordinary mail to the entrustee's last known business address. There is no question that petitioners failed to pay their outstanding obligation to respondent bank. They contend, however, that when the entrustee fails to settle his principal

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loan, the entruster may choose between two separate and alternative remedies: (1) the return of the goods covered by the trust receipt, in which case, the entruster now acquires the ownership of the goods which the entrustee failed to sell; or (2) cancel the trust and take possession of the goods, for the purpose of selling the same at a private sale or at public auction. Petitioners assert that, under this second remedy, the entruster does not acquire ownership of the goods, in which case he is entitled to the deficiency. Petitioners argue that these two remedies are so distinct that the availment of one necessarily bars the availment of the other. Thus, when respondent bank availed of the remedy of demanding the return of the goods, the actual return of all the unsold goods completely extinguished petitioners' liability.4 Petitioners' argument is bereft of merit. A trust receipt is inextricably linked with the primary agreement between the parties. Time and again, we have emphasized that a trust receipt agreement is merely a collateral agreement, the purpose of which is to serve as security for a loan. Thus, in Abad v. Court of Appeals,5 we ruled: A letter of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under that set-up, a bank extends a loan covered by the letter of credit, with the trust receipt as security for the loan. In other words, the transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. x x x. A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest" in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation.6 The Trust Receipts Law was enacted to safeguard commercial transactions and to offer an additional layer of security to the lending bank. Trust receipts are indispensable contracts in international and domestic business transactions. The prevalent use of trust receipts, the danger of their misuse and/or misappropriation of the goods or proceeds realized from the sale of goods, documents or instruments held in trust for entruster banks, and the need for regulation of trust receipt transactions to safeguard the rights and enforce the obligations of the parties involved are the main thrusts of the Trust Receipts Law.7 The second paragraph of Section 7 provides a statutory remedy available to an entruster in the event of default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee. More specifically, the entruster "may cancel the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds realized therefrom at any time". The law further provides that "the entruster in possession of the goods, documents or instruments may, on or after default, give notice to the entrustee of the intention to sell, and may, not less than five days after serving or sending of such notice, sell the goods, documents or instruments at public or private sale, and the entruster may, at a public sale, become a purchaser. The proceeds of any such sale, whether public or private, shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the expenses of retaking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the entrustee's indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency."

The trust receipt between respondent bank and petitioner corporation contains the following relevant clauses: The BANK/ENTRUSTER may, at any time, and only at its option, cancel this trust and take possession of the goods/documents/instruments subject hereof or of the proceeds realized therefrom wherever they may then be found, upon default or failure of the ENTRUSTEE to comply with any of the terms and conditions of this Trust Receipt or of any other agreement between the BANK/ENTRUSTER and the ENTRUSTEE; and the BANK/ENTRUSTER having taken repossession of the goods/documents/instruments object hereof may, on or after default, give at least five (5) days' previous notice to the ENTRUSTEE of its intention to sell the goods/documents/instruments at public or private sale, at which public sale, it may become a purchaser; Provided, that the proceeds of any such sale, whether public or private, shall be applied: (a) to the payment of the expenses thereof; (b) to the payment of the expenses of retaking, keeping and storing the goods/documents/instruments; (c) to the satisfaction of all of the ENTRUSTEE's indebtedness to the BANK/ENTRUSTER; and Provided, further, that the ENTRUSTEE shall receive any surplus thereof but shall, in any case, be liable to the BANK/ENTRUSTER for any deficiency. x x x No act or omission on the part of the BANK/ENTRUSTER shall be deemed and considered a waiver of any of its rights hereunder or under any related letters of credit, drafts or other documents unless such waiver is expressly made in writing over the signature of the BANK/ENTRUSTER.8 The afore-cited stipulations in the trust receipt are a near-exact reproduction of the second paragraph of Section 7 of the Trust Receipts Law. The right of repossession and subsequent sale at public auction which were availed of by respondent bank were rights available upon default, and which were conferred by statute and reinforced by the contract between the parties. The initial repossession by the bank of the goods subject of the trust receipt did not result in the full satisfaction of the petitioners' loan obligation. Petitioners are apparently laboring under the mistaken impression that the full turn-over of the goods suffices to divest them of their obligation to repay the principal amount of their loan obligation. This is definitely not the case. In Philippine National Bank v. Hon. Gregorio G. Pineda and Tayabas Cement Company, Inc.,9 we had occasion to rule: PNB's possession of the subject machinery and equipment being precisely as a form of security for the advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere possession does not amount to foreclosure for foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself. Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is alienated to the creditor in satisfaction of a debt in money and the same is governed by sales. Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. As aforesaid, the repossession of the machinery and equipment in question was merely to secure the payment of TCC's loan obligation and not for the purpose of transferring ownership thereof to PNB in satisfaction of said loan. Thus,

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no dacion en pago was ever accomplished. (Citations omitted, underscoring supplied)10 Indeed, in the 1987 case of Vintola v. Insular Bank of Asia and America,11 we struck down the position of the petitionerspouses that their obligation to the entruster bank had been extinguished when they relinquished possession of the goods in question. Thus: A trust receipt is a security agreement, pursuant to which a bank acquires a "security interest" in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation. As defined in our laws: (h) Security Interest means a property interest in goods, documents or instruments to secure performance of some obligations of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only. xxx xxx xxx

thus well within its rights to institute the instant case to collect the deficiency. We find, however, that there has been an error in the computation of the total amount of petitioners' indebtedness to respondent bank. Although respondent bank contends that the error of computation is a question of fact which is beyond the power of this Court to review,13 the total amount of petitioners' indebtedness in this case is not a question of fact. Rather, it is a question of law, i.e., the application of legal principles for the computation of the amount owed to respondent bank, and is thus a matter properly brought for our determination. The first issue involves the amount of indebtedness prior to the imposition of interest and penalty charges. The initial amount of the trust receipt of P218,733.92, was reduced to P192,265.92 as of June 14, 1984, as per respondent's Statement of Past Due Trust Receipt dated December 1, 1993.14 This amount presumably includes the application of P35,000.00, the amount of petitioner Lucente's Deed of Assignment, which amount was applied by respondent bank to petitioners' obligation. No showing was made, however, that the P30,000.00 proceeds of the auction sale on July 31, 1985 was ever applied to the loan. Neither was the amount of P50,414.00, representing the marginal deposit made by petitioner corporation, deducted from the loan. Although respondent bank contends that the marginal deposit should not be deducted from the principal obligation, this is completely contrary to prevailing jurisprudence allowing the deduction of the marginal deposit, thus: The marginal deposit requirement is a Central Bank measure to cut off excess currency liquidity which would create inflationary pressure. It is a collateral security given by the debtor, and is supposed to be returned to him upon his compliance with his secured obligation. Consequently, the bank pays no interest on the marginal deposit, unlike an ordinary bank deposit which earns interest in the bank. As a matter of fact, the marginal deposit requirement for letters of credit has been discontinued, except in those cases where the applicant for a letter of credit is not known to the bank or does not maintain a good credit standing therein. It is only fair then that the importer's marginal deposit (if one was made, as in this case), should be set off against his debt, for while the importer earns no interest on his marginal deposit, the bank, apart from being able to use said deposit for its own purposes, also earns interest on the money it loaned to the importer. It would be onerous to compute interest and other charges on the face value of the letter of credit which the bank issued, without first crediting or setting off the marginal deposit which the importer paid to the bank. Compensation is proper and should take place by operation of law because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount (Art. 1290, Civil Code). Although Abad is only a surety, he may set up compensation as regards what the creditor owes the principal debtor, TOMCO (Art. 1280, Civil Code).15 The net amount of the obligation, represented by respondent bank to be P292,172.23 as of April 17, 1986, would thus be P211,758.23. To this principal amount must be imposed the following charges: (1) 19% interest per annum, in keeping with the terms of the trust receipt;16 and (2) 12% penalty per annum, collected based on the outstanding principal obligation plus unpaid

Contrary to the allegations of the VINTOLAS, IBAA did not become the real owner of the goods. It was merely the holder of a security title for the advances it had made to the VINTOLAS. The goods the VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender and creditor. "x x x for the bank has previously extended a loan which the L/C represents to the importer, and by that loan, the importer should be the real owner of the goods. If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof. x x x" Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods. The fact that they were unable to sell the seashells in question does not affect IBAA's right to recover the advances it had made under the Letter of Credit. (Citations omitted.)12 Respondent bank's repossession of the properties and subsequent sale of the goods were completely in accordance with its statutory and contractual rights upon default of petitioner corporation. The second paragraph of Section 7 expressly provides that the entrustee shall be liable to the entruster for any deficiency after the proceeds of the sale have been applied to the payment of the expenses of the sale, the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments, and the satisfaction of the entrustee's indebtedness to the entruster. In the case at bar, the proceeds of the auction sale were insufficient to satisfy entirely petitioner corporation's indebtedness to the respondent bank. Respondent bank was

12

interest, again in keeping with the wording of the trust receipt.17 It appearing that petitioners have paid the interest and penalty charges until April 17, 1986, the reckoning date for the computation of the foregoing charges must be April 18, 1986. A perusal of the records reveals that the trial court and the Court of Appeals erred in imposing service charges upon the petitioners. No such stipulation is found in the trust receipt. Moreover, the trial court and the Court of Appeals erred in computing attorney's fees equivalent to 10% per annum, rather than 10% of the total amount due. There is no basis for compounding the interest annually, as the trial court and Court of Appeals have done. This amount would be unconscionable. Finally, Lucente and Llaban's contention that they are not solidarily liable with petitioner corporation is untenable. As cosignatories of the Continuing Suretyship Agreement, they bound themselves, inter alia, to pay the principal sum in the amount of not more than P400,000.00; interest due on the principal obligation; attorney's fees; and expenses that may be incurred in collecting the credit. The amount owed to respondent bank is the amount of the principal, interest, attorney's fees, and expenses in collecting the principal amount. The Continuing Suretyship Agreement expressly states the nature of the liability of Lucente and Llaban: The liability of the SURETY shall be solidary, direct and immediate and not contingent upon the bank's pursuit of whatever remedies the BANK have [sic] against the Borrower or the securities or liens the BANK may possess and the SURETY will at any time, whether due or not due, pay to the BANK with or withour demand upon the Borrower, any of the instruments of indebtedness or other obligation hereby guaranteed by the SURETY.18 Solidary liability is one of the primary characteristics of a surety contract,19 and the Continuing Suretyship Agreement expressly stipulates the solidary nature of Lucente and Llaban's liability. All three petitioners thus share the solidary obligation in favor of respondent bank, which is given the right, under the Civil Code, to proceed against any one of the solidary debtors or some or all of them simultaneously.20 WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 58193 dated February 13, 2003 is AFFIRMED with MODIFICATIONS. Accordingly, petitioners are ordered to pay respondent bank the following: (1) P211,758.23 representing petitioners' net obligation as of April 17, 1986; (2) interest at the rate of 19% per annum and penalty at the rate of 12% per annum reckoned from April 18, 1986; (3) attorney's fees equivalent to 10% of the total amount due and collectible; and (4) litigation expenses in the amount of P3,000.00. The service charge at the rate of 2% per annum beginning April 18, 1986 is deleted. Costs against petitioners. SO ORDERED.

MONTEMAYOR, J.: As of February 1942, the estate of Pedro Rodriguez was indebted to the defendant Philippine National Bank in the amount of P22,128.44 which represented the balance of the crop loan obtained by the estate upon its 1941-1942 sugar cane crop. Sometime in February 1942, Mrs. Amparo R. Martinez, late administratrix of the estate upon request of the defendant bank through its Cebu branch, endorsed and delivered to the said bank two (2) quedans according to plaintiff-appellant issued by the Bogo-Medellin Milling Co. where the sugar was stored covering 2,198.11 piculs of sugar belonging to the estate, although according to the defendant-appellee, only one quedan covering 1,071.04 piculs of sugar was endorsed and delivered. During the last Pacific war, sometime in 1943, the sugar covered by the quedan or quedans was lost while in the warehouse of the Bogo-Medellin Milling Co. In the year 1948, the indebtedness of the estate including interest was paid to the bank, according to the appellant, upon the insistence of and pressure brought to bear by the bank. Under the theory and claim that sometime in February 1942, when the invasion of the Province of Cebu by the Japanese Armed Forces was imminent, the administratrix of the estate asked the bank to release the sugar so that it could be sold at a good price which was about P25 per picul in order to avoid its possible loss due to the invasion, but that the bank refused the request and as a result the amount of P54,952.75 representing the value of said sugar was lost, the present action was brought against the defendant bank to recover said amount. After trial, the Court of First Instance of Manila dismissed the complaint on the ground that the transfer of the quedan or quedans representing the sugar in the warehouse of the Bogo-Medellin Milling Co. to the bank did not transfer ownership of the Sugar, and consequently, the loss of said sugar should be borne by the plaintiff-appellant. Administrator Jose R. Martinez is now appealing from that decision. We agree with the trial court that at the time of the loss of the sugar during the war, sometime in 1943, said sugar still belonged to the estate of Pedro Rodriguez. It had never been sold to the bank so as to make the latter owner thereof. The transaction could not have been a sale, first, because one of the essential elements of the contract of sale, namely, consideration was not present. If the sugar was sold, what was the price? We do not know, for nothing was said about it. Second, the bank by its charter is not authorized to engage in the business of buying and selling sugar. It only accepts sugar as security for payment of its crop loans and later on pursuant to an understanding with the sugar planters, it sells said sugar for them, or the planters find buyers and direct them to the bank. The sugar was given only as a security for the payment of the crop loan. This is admitted by the appellant as shown by the allegations in its complaint filed before the trial court and also in the brief for appellant filed before us. According to law, the mortgagee or pledgee cannot become the owner of or convert and appropriate to himself the property mortgaged or pledged (Article 1859, old Civil Code; Article 2088, new Civil Code). Said property continues to belong to the mortgagor or pledgor. The only remedy given to the mortgagee or pledgee is to have said property sold at public auction and the proceeds of the sale applied to the payment of the obligation secured by the mortgage or pledge. The position and claim of plaintiff-appellant is rather inconsistent and confusing. First, he contends that the endorsement and delivery of the quedan or quedans to the bank transferred the ownership of the sugar to said bank so that as

G.R. No. L-4080. September 21, 1953.] JOSE R. MARTINEZ, as administrator of the Instate Estate of Pedro Rodriguez, deceased, Plaintiff-Appellant, vs. PHILIPPINE NATIONAL BANK, Defendant-Appellee. DECISION

13

owner, the bank should suffer the loss of the sugar on the principle that "a thing perishes for its owner". We take it that by endorsing the quedan, defendant was supposed to have sold the sugar to the bank for the amount of the outstanding loan of P22,128.44 and the interest then accrued. That would mean that plaintiff's account with the bank has been entirely liquidated and their contractual relations ended, the bank, suffering the loss of the amount of the loan and interest. But plaintiffappellant in the next breath contends that had the bank released the sugar in February 1942, plaintiff could have sold it for P54,952.75, from which the amount of the loan and interest could have been deducted, the balance to have been retained by plaintiff, and that since the loan has been entirely liquidated in 1948, then the whole expected sales price of P54,952.75 should now be paid by the bank to appellant. This second theory presupposes that despite the endorsement of the quedan, plaintiff still retained ownership of the sugar, a position that runs counter to the first theory of transfer of ownership to the bank. In the course of the discussion of this case among the members of the Tribunal, one or two of them who will dissent from the majority view sought to cure and remedy this apparent inconsistency in the claim of appellant and sustain the theory that the endorsement of the quedan made the bank the owner of the sugar resulting in the payment of the loan, so that now, the bank should return to appellant the amount of the loan it improperly collected in 1948. In support of the theory of transfer of ownership of the sugar to the bank by virtue of the endorsement of the quedan, reference was made to the Warehouse Receipts Law, particularly section 41 thereof, and several cases decided by this court are cited. In the first place, this claim is inconsistent with the very theory of plaintiff-appellant that the sugar far from being sold to the bank was merely given as security for the payment of the crop loan. In the second place, the authorities cited are not directly applicable. In those cases this court held that for purposes of facilitating commercial transaction, the endorsee or transferee of a warehouse receipt or quedan should be regarded as the owner of the goods covered by it. In other words, as regards the endorser or transferor, even if he were the owner of the goods, he may not take possession and dispose of the goods without the consent of the endorsee or transferee of the quedan or warehouse receipt; that in some cases the endorsee of a quedan may sell the goods and apply the proceeds of the sale to the payment of the debt; and as regards third persons, the holder of a warehouse receipt or quedan is considered the owner of the goods covered by it. To make clear the view of this court in said cases, we are quoting a portion of the decisions of this court in two of these cases cited which are typical. "As to the first cause of action, we hold that in January, 1919, the bank became and remained the owner of the five quedans Nos. 30, 35, 38, 41, and 42; that they were in form negotiable, and that, as such owner, it was legally entitled to the possession and control of the property therein described at the time the insolvency petition was filed and had a right to sell it and apply the proceeds of the sale to its promissory notes, including the three notes of P18,000 each, which were formerly secured by the three quedans Nos. 33, 36, and 39, which the bank surrendered to the firm." (Philippine Trust Co. vs. National Bank, 42 Phil., 413, 427). ". . . Section 53 provides that within the meaning of the Act 'to "purchase" includes to take as mortgagee or pledgee' and "purchaser" includes mortgagee and pledgee.' It therefore seems clear that, as to the legal title to the property covered by a

warehouse receipt, a pledgee is on the same footing as a vendee except that the former is under the obligation of surrendering his title upon the payment of the debt secured. To hold otherwise would defeat one of the principal purposes of the Act, i.e., to furnish a basis for commercial credit." (Bank of the Philippine Islands vs. Herridge, 47 Phil. 57, 70). It is obvious that where the transaction involved in the transfer of a warehouse receipt or quedan is not a sale but pledge or security, the transferee or endorsee does not become the owner of the goods but that he may only have the property sold and then satisfy the obligation from the proceeds of the sale. From all this, it is clear that at the time the sugar in question was lost sometime during the war, estate of Pedro Rodriguez was still the owner thereof. It is further contended in this appeal that the defendantappellee failed to exercise due care for the preservation of the sugar, and that the loss was due to its negligence as a result of which the appellee incurred the loss. In the first place, this question was not raised in the court below. Plaintiff's complaint failed to make any allegation regarding negligence in the preservation of this sugar. In the second place, it is a fact that the sugar was lost in the possession of the warehouse selected by the appellant to which it had originally delivered and stored it, and for causes beyond the bank's control, namely, the war. In connection with the claim that had the bank released the sugar sometime in February, 1942, when requested by the plaintiff, said sugar could have been sold at the rate of P25 a picul or a total of P54,952.75, the amount of the present claim, there is evidence to show that the request for release was not made to the bank itself but directly to the official of the warehouse, the Bogo-Medellin Milling Co. and that the bank was not aware of any such request, but that before April 9, 1942, when the Cebu branch of the defendant was closed, the bank through its officials offered the sugar for sale but that there were no buyers, perhaps due to the unsettled and chaotic conditions then obtaining by reason of the enemy occupation. 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. In view of the foregoing, the decision appealed from is hereby affirmed, with costs. Bengzon, Padilla, Tuason, Reyes, Jugo, Bautista Angelo and Labrador, JJ., concur. Separate Opinions PARAS, C.J., dissenting: The plaintiff seeks to recover from the defendant Philippine National Bank the sum of P54,952.75, representing the value of 2,198.11 piculs of sugar covered by two quedans indorsed and delivered to the bank by the administratrix of the estate of the

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deceased Pedro Rodriguez to secure the indebtedness of the latter in the amount of P22,128.44. It is alleged that when the two quedans were indorsed and delivered to the defendant bank in or about January, 1942, the sugar was in deposit at the Bogo-Medellin Sugar Co., Inc.; that said sugar was lost during the war; that the indebtedness of P22,128.44 was liquidated in 1948 by the estate of the deceased Pedro Rodriguez and that, notwithstanding demands, the defendant bank refused to credit the plaintiff with the value of the sugar lost. There is no question as to the existence of the sugar covered by the two quedans, or as to the indorsement and delivery of said quedans to the defendant bank The Court of First Instance of Manila which decided against the plaintiff and held that the defendant bank is not liable for the loss of the sugar in question, indeed stated that the only question that arises is whether the indorsement of the warehouse receipts transferred the ownership of the sugar to the defendant bank; that if it did, the bank should suffer the loss, but if it did not, the loss should be for the account of the estate of the deceased Pedro Rodriguez. In dismissing the plaintiff's action, the trial court held that the indorsement of the quedans to the defendant bank did not carry with it the transfer of ownership of the sugar, as the indorsement and delivery were effected merely to secure the payment of an indebtedness, to facilitate the sale of the sugar, and to prevent the debtor from disposing of it without the knowledge and consent of the defendant bank. The plaintiff has appealed. The applicable legal provision is section 41 of Act No. 2137, otherwise known as the Warehouse Receipts Law, which reads as follows: "SEC. 41. Rights of person to whom a receipt has been negotiated. A person to whom a negotiable receipt has been duly negotiated acquires thereby: "(a) Such title to the goods as the person negotiating the receipt to him had or had ability to convey to a purchaser in good faith for value, and also such title to the goods as the depositor or person to whose order the goods were to be delivered by the terms of the receipt had or had ability to convey to a purchaser in good faith for value, and. "(b) The direct obligation of the warehouseman to hold possession of the goods for him according to the terms of the receipt as fully as if the warehouseman had contracted directly with him." This provision plainly states that a person to whom a negotiable receipt (such as the sugar quedans in question) has been duly negotiated acquires title to the goods covered by the receipt, as well as the possession of the goods through the warehouseman, as if the latter had contracted directly with the person to whom the negotiable receipt has been duly negotiated. Consequently, the defendant bank to whom the two quedans in question have been indorsed and delivered, thereby acquired the ownership of the sugar covered by said quedans, with the logical result that the loss of the article should be borne by the defendant bank. The fact that the quedans were indorsed and delivered as a security for the payment of an indebtedness did not prevent the bank from acquiring ownership, since the only effect of the transfer was that the debtor could reacquire said ownership upon payment of his obligation. Section 41 of Act No. 2137 had already been construed by this court in the sense that ownership passes to the indorsee, although the quedans are indorsed and delivered merely as a security. (Sy Cong Bieng vs. Hongkong & Shanghai Bank, 56 Phil., 498; Philippine Trust Co.

vs. Philippine National Bank, 42 Phil., 438; Bank of the Philippine Islands vs. Herridge, 47 Phil., 57; Roman vs. Asia Banking Corporation, 46 Phil., 405.) The relation of a pledgor of a warehouse receipt, duly indorsed and delivered to the pledgee, is substantially analogous to the relation of a vendor and vendee, with right of repurchase. The vendor a retro actually transfers the ownership of the property sold to the vendee, but the former may reacquire said ownership upon payment of the repurchase price. If the property sold a retro is lost before being repurchased, the vendee naturally has to bear the loss, with the vendor having nothing to repurchase. But if the loss should occur after the repurchase price has been paid but before the property sold a retro is actually reconveyed, the vendee is bound to return to the vendor only the repurchase price paid, and not the value of the property. In my opinion, therefore, the loss of the sugar should be for the account of the defendant bank, which should return to the plaintiff P22,128.44, the amount of the indebtedness of the estate of the deceased Pedro Rodriguez which had already been paid in 1948, without however being liable for the difference between P54,952.75 (actual value of the sugar) and the amount of said payment. The appealed judgment should therefore be reversed and the defendant bank sentenced to pay to the plaintiff the sum of P22,128.44.chanroblesvirtualawlibrary -----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

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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 Third-Party 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 ofP63,000,000.00, *** 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 onCertiorari 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. 9053023, 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

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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

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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 ofP734,341,595.06 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. xxx xxx xxx

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.

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.

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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. xxx xxx xxx

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.

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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. 1987-88)[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

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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 fe es 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 of P734,341,595.06, 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

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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 amou nt 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;

22

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 appealtherefrom.[31] Nevertheless, petitioner was not precluded from availing of the extraordinary remedy of certiorari under Rule 65 of the Rules of Court. It is wellsettled 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 quedanswere 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 of P23.5 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. InPhilippine 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

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[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;

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

(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

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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 thequedans. Costs against private respondents. SO ORDERED. Bellosillo, Vitug, Panganiban, and Quisumbing, JJ., concur. ---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

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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 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

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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. 9053023, 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.

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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, 1995AND 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, datedSeptember 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 Noahs Ark 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

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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

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. Padilla (Chairman), Bellosillo, Vitug, and Kapunan, Jr., JJ., concur.

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 on December 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