Add TAGS to your cases to easily locate them or to build your SYLLABUS.
Please SIGN IN to use this feature.
Highlight text as FACTS, ISSUES, RULING, PRINCIPLES to generate case DIGESTS and REVIEWERS.
Please LOGIN use this feature.
Show as cited by other cases (1 times)
Show printable version with highlights

[ GR No. 43117, Dec 14, 1936 ]



63 Phil. 814

[ G. R. No. 43117, December 14, 1936 ]




The plaintiff Philippine National Bank appealed from the judgment of the Court of First Instance of Manila dismissing its complaint, cancelling the bond filed by the  defendants Viuda e  Hijos de Angel Jose and Fidelity  and Surety Company of the Philippine  Islands, Inc., in favor of the defendant sheriff of the City of Manila, and  sentencing it to  pay  the costs of the suit.   In this instance it seeks the reversal of said judgment on the ground that:
  1. The lower court erred in  not holding that appellant has  a better right to the P1,948.03, part of the proceeds of the gasoline imported  by Coleman Petroleum Products Co., Inc., and covered  by the Trust Receipt  agreement Exhibit A-1 executed by it in favor of appellant,  than that of appellee Viuda e Hijos de Angel Jose at whose instance the same was subsequently  garnished.
  2. The lower court erred in  holding that appellant has lost whatever lien or preference it might  have over  the gasoline covered  by the  'Trust Receipt' contract Exhibit A-1 from the moment it gave its approval and consent for the sale of the same to the Manila Railroad Company.
  3. The lower court erred in not rendering judgment in favor of appellant, in dismissing appellant's complaint, and in denying its motion for a new trial."
The pertinent facts proven at the trial, which should be taken into account in order to decide the questions raised by the  appellant by means of the three alleged errors attributed by it to  the lower court, may be summarized as follows:
Upon petition of Coleman Petroleum Products Co., Inc., which is a mercantile company established in  the City of Manila, Export Petroleum Company of California, Ltd. gent from  California to  Manila one thousand drums of gasoline valued  at $6,227.50, United States  currency, addressed to said Coleman Petroleum Products Co., Inc., consigning them to  the plaintiff and  appellant Philippine National Bank.  This bank received the merchandise about the middle of July 1933, together with the bill of lading covering it and  the draft Exhibit A-2 for $6,227.50 representing the price thereof.   Export Petroleum Company of  California,  Ltd.  requested the  appellant to collect the amount of the draft from Coleman Petroleum Products Co., Inc. and to deliver the merchandise in question thereto only after it has been paid the price thereof.  Inasmuch as Coleman Petroleum Products Co., Inc., then had no money to pay the  draft, it asked the plaintiff to pay in its stead in order to enable it  to take delivery and dispose of the merchandise.   The plaintiff acceded to the petition on condition that Coleman Petroleum  Products Co., Inc., executed, as it in fact executed, the "Trust Receipt" Exhibit A-1 in favor of the former.  Under the terms of this  contract, Coleman Petroleum Products Co., Inc. bound itself, among other things, to the following:
"*  *  *  to hold  said  merchandise  in  storage as  the property of said  bank, with the liberty to sell the same for cash for its account am! to be handed the proceeds thereof to the said bank to apply against its acceptance on account of the undersigned  and/or under the terms of the letter of credit noted below; and further agrees to hold said merchandise and the proceeds thereof in trust for the payment of said acceptance and  of any other indebtedness of the undersigned to the said bank.

"The  said bank may at any time cancel this trust and take possession of said merchandise or of the proceeds of such the same as may then have been sold,  wherever the said merchandise or proceeds may  then  be found, and  all the provisions of this  trust receipt shall apply to and be deemed  to include  said above mentioned merchandise if the same shall have been made up or used  in the manufacture  of any other goods,  or merchandise,  and the same said bank shall have the same rights and remedies against the said merchandise in its manufactured state, or the product of said manufacture as it would have had in the event that such merchandise had remained in  its original state, and irrespective of the fact that other and different merchandise is used in completing such manufacture.  In the event of any suspension or failure of the assignment for the benefit of creditors on the part of the undersigned, or of the non-fulfillment of any obligation, or of the non-payment at maturity of any acceptance  made under  said credit issued by the said bank on account of the undersigned or of the non-payment of any indebtedness on the part of the undersigned to the said  bank, all obligations, acceptances, indebtedness and liabilities whatsoever shall thereupon without notice, mature and become due and payable.

"The  undersigned further agrees to keep  said merchandise insured against fire to its full value, loss of any, payable to the said bank, at the  proper  cost and expense  of the undersigned,  who hereby agrees to  pay all charges  for storage  on said merchandise, or any and  all other expenses incurred thereon.

"It is further  agreed that any failure on the part  of the undersigned to fully carry out any of the provisions,  terms or conditions of this trust receipt or agreement under  which the said bank issued the letter of credit by which said merchandise was purchased, even if known to the said bank, shall not be deemed a waiver of performance of any such provision, term or condition or otherwise by said bank, or a waiver of any of its rights or remedies under either said trust receipt or agreement under which the said bank issued the letter of credit noted below;  and any waiver in order to operate as such, must be in writing and also indorsed hereon and properly signed by the said bank and nothing in this agreement contained shall in any way affect, vary or impair any  of the provisions  of the letter of credit under which said merchandise was purchased, and of term, conditions or provisions of the agreement under which said letter of credit was issued.

"The undersigned hereby agrees to deliver to the said bank, upon  demand,  collateral security to its satisfaction should the market  value of the  merchandise referred lo herein suffer any decline and also  gives to the said  bank a lien on all property given unto or left in the possession of or hereafter given or left in the possession of the said bank, by  or for the account of the undersigned, and also  upon any present or future balance on the deposit account of the undersigned  with the said bank, for the amount  of any liability hereunder or otherwise of  the undersigned to the said bank."
To  better secure  the  payment of  the  plaintiff's credit stated  in  the said trust receipt  (Exhibit A-1), Coleman Petroleum Products Co., Inc., bound  itself to have all the merchandise or  the  1,000  drums of gasoline deposited in said plaintiff's warehouses so  that not a single drum could be  withdrawn  therefrom  without  its knowledge.  After these arrangements had been made  and also after Coleman Petroleum Products Co.,  Inc., had  executed the trust receipt above-stated in favor of the plaintiff, the former entered  into a contract with the Manila Railroad Company to supply it with gasoline at P0.42 a gallon  f. o. b.  This latter  contract of Coleman Petroleum  Products Co., Inc. became effective about the end of July 1933.  The gasoline with which said company expected to  supply  the Manila Railroad  Company was  no  other than that  sent to it  by Export Petroleum Company of California, Ltd.,  the same gasoline the proceeds  of  which was paid by the plaintiff by virtue of the understanding it had with Coleman Petroleum Products Co., Inc. and which culminated  in the execution of the aforesaid trust receipt.

In consonance with the  stipulations and contract entered into between Coleman Petroleum Products Co., Inc. and the plaintiff  regarding the payment of the sum  of $6,227.50 advanced by the latter for the one thousand drums of gasoline in question, it  was agreed between  both and the Manila Railroad Company that the payments to be made by  the latter to Coleman  Petroleum Products  Co., Inc. would  be made directly to the plaintiff; and so had it been done thereafter until October 16,1933.

Such was the state of things when the defendant Viuda e Hijos de Angel Jose, which had filed an action against Coleman Petroleum  Products  Co.,  Inc. in civil  case No. 44709 of the Court of First  Instance of Manila  for the recovery of a certain credit,  obtained a judgment against said company on August 23, 1933.  By virtue of a writ  of attachment and of  execution issued in said  civil case on October 13 and 26, 1933, respectively, the sheriff garnished the sum of P1,948.03 in the possession of the Manila Railroad Company as proceeds of the gasoline supplied to it by Coleman Petroleum Products Co.,  Inc.,  which sum should have been paid to the plaintiff by virtue of  the arrangements  or understanding had between the latter and the said two  companies.  Notwithstanding the  opposition  of the herein plaintiff  which had  filed a  third party claim therein, the sum in question  was applied to the payment of the judgment rendered in favor of Viuda e Hijos de Angel Jose in the aforesaid civil  case No, 44709, the latter having filed the above-stated bond of P2,200 through the Fidelity & Surety Co.  The plaintiff  brought the action dismissed by virtue of the judgment from which it has appealed, for the purpose of recovering the sum in question.

As stated in the case of People vs. Yu Chai Ho (53 Phil., 874, 876),  citing with approval  the  case of  In re Dunlap Carpet Co. (206 Fed., 726), " 'By this  arrangement (of trust receipt) a banker advances money to an intending importer, and thereby lends the aid of capital, of credit, or of business facilities and agencies abroad, to  the enterprise of foreign commerce.  Much of this trade could hardly  be carried on by any other means, and therefore it is of the first importance that the fundamental factor in the transaction, the banker's advance of money and  credit, should receive the amplest protection.  Accordingly, in order to secure that the banker shall be repaid at the critical point that is, when the imported  goods finally reach the hands of the intended vendee the banker takes the  full title to the goods at the very beginning; he takes it as  soon as the goods are brought and settled for by his payments or acceptances in the foreign country, and he continues to hold that title as his indispensable security until the goods are sold in  the United States and  the vendee is called upon to. pay  for them.  This security is not an ordinary pledge by the  importer to the banker, for the importer has never owned the goods, and moreover he is not able to deliver the possession; but the security is the complete title vested  originally in the bankers, and this characteristic of the transaction has again and again been recognized and protected by the courts. Of course,  the title is  at bottom  a security title, as it has sometimes been called, and the banker is always  under the obligation to reconvey;  but only  after his advances have been fully  repaid and  after the importer has fulfilled  the other terms of the contract.' "

It  is reasonable  that contracts contained  in  trust  receipts, as the one entered into between the plaintiff-appellant and Coleman Petroleum Products Co., Inc.,  should be recognized and  protected by  the courts because they are permitted by law, all the more so because there is a cardinal principle  that the contracting parties  may establish any agreements, terms and conditions they may deem advisable, provided they are not contrary to law, morals,  or public order  (article 1255, Civil Code); and certainly the agreements,  terms and conditions of the trust receipt  agreement, Exhibit A-1, under consideration are not contrary to law, morals, or public order.  In a certain manner, they partake of the nature of a conditional sale  as provided by the Chattel Mortgage Law, that is, the importer becomes absolute owner of the imported merchandise as soon as he has paid its price.  The ownership of the merchandise continues to be  vested in the owner thereof or in the person who has  advanced payment, until  he has  been paid in full, or if the merchandise has already been sold, the proceeds of the  sale should be turned over to him by the importer or by  his representative or successor in interest.

Furthermore, under the very provisions of the Civil Code, the appellant's  credit enjoys preference over any other credit of any other creditor of Coleman Petroleum Products Co., Inc. and its right to the sum of P1,948.03 garnished by the defendant sheriff from  the  Manila  Railroad  Co., is superior to that of the defendant Viuda e Hijos  de Angel Jose, which was a mere judgment creditor, on the ground that said sum was the proceeds of the sale of a part of the one thousand drums  of  gasoline which gave rise to the aforesaid  trust receipt agreement,  Exhibit A-1.  This is so by virtue of  the provisions contained in articles 1921, 1922 and  1926 of the Civil  Code, the  pertinent parts of which read as follows:
"Art. 1921. Credits shall be classified for their graduation and payment in the order and manner specified in this chapter.

"Art. 1922. With respect to determinate personal property of the debtor, the following are preferred:

   "2. Credits secured by a pledge in the possession of the creditor, with respect to  the thing pledged and to the extent of its value.

*          *          *         *        *       *              *

"Art. 1926. Credits which enjoy preference with respect to certain personal property shall exclude all others to the extent of the value of the property to which such preference relates.

"When  two or more creditors claim preference with respect to the same specific personal property, the following rules shall be observed as to priority of payment:
"1. Credits secured by a pledge shall exclude all others to the extent of the value of the thing pledged,."
*          *          *         *        *       *              *
The credits referred to in the above-cited  articles are the so-called specially privileged credits, or those which, according to Manresa (12 Civil Code, 4th ed.,  page 639), enjoy preference with respect to determinate  property of the  debtor.

The credit of  Viuda e  Hijos de Angel Jose as judgment creditor, does not enjoy the same privilege enjoyed by that of the appellant, which is singular and special.   It is mentioned third  only in article 1924 of the Civil Code referring to credits which,  while  having preference among themselves, have none  over the specially  privileged  ones  enumerated in articles. 1922 and 1923.

For the foregoing reasons,  it is declared that the  first error assigned by the  appellant is well taken.

As to the second error, the Philippine National Bank contends that the lower court's conclusion that said appellant lost every preference  it had to the gasoline in question from the time it permitted the sale and delivery thereof to the Manila Railroad Company, is unfounded, because article 340 of the Code of Commerce upon which it is based is not applicable to the case in question.   In fact the above-cited article recognizes the vendor's  right  of  preference to the articles sold to obtain payment of  the price thereof, during the time they are in his possession even though they be in the nature of deposit.

The lower court, however, has lost sight of the fact that the appellant's purpose in authorizing the delivery to the Manila Railroad Company of said merchandise, of the price of which the  sum of P1,948.03 in question formed part, was precisely  to enable Coleman Petroleum Products Co., Inc., to comply not only with the terms of it§ contract with the Manila Railroad  Company (Exhibit 1), but also and more principally, with those of the trust receipt (Exhibit A-1) entered into between it and the appellant.   It should be borne  in mind that  one of the conditions of  said contract was:  "****  to sell the same meaning the gasoline , for cash for its  account and to be handed the proceeds  thereof to  the  said bank  to  apply  against  its acceptance on account  of the undersigned and/or  under the terms of the letter of credit noted below;  *  *  *."

Even granting that Coleman Petroleum  Products Co., Inc., may be considered the vendor of the gasoline, its  preferential right to claim the price of said merchandise from the Manila Railroad Company, which is the  thing attached  by the appellee Viuda e Hijos de Angel Jose to be applied later to satisfy or pay its judgment  credit, was, however, expressly  and specially subject  to the appellant's right  to claim said price for the purpose of applying it to the amount it had  advanced in  payment of the draft, Exhibit A-2, of Export Petroleum Company of California, Ltd., which was the determining cause  of the execution of the  trust  receipt Exhibit A-l by said Coleman Petroleum Products Co., Inc. For all purposes, the appellee Viuda e Hijos de  Angel Jose was not a third person in connection with the contract entered into  between Coleman  Petroleum  Products Co., Inc. and the appellant.  Its right was merely that of said Coleman Petroleum Products Co., Inc. singularly and specially subject,  as already  stated,  to the appellant's credit, admitting now that the appellant was the  vendor of the gasoline  in the  sense of  said article 340 of the Code  of Commerce.  This court is of the  opinion that the second error is likewise well founded.

The third error, being a mere  corollary of the former two errors, should be declared as  well founded as those.

For all the foregoing, this court holds that the appellant's appeal from the judgment of the lower court is well taken; reverses, as a consequence,  the appealed  judgment; sentences the appellee Viuda e Hijos de Angel Jose to pay and turn over to the appellant the sum of P1,948.03 with legal interest thereon from October 27, 1933,  until fully paid; and orders that in default of payment of the sum in question with the interest thereon by said appellee Viuda e Hijos de Angel Jose, it be paid to the appellant by the other appellee Fidelity and Surety Company of the Philippine Islands, Inc., with the costs of both  instances to the appellee Viuda e Hijos de Angel Jose.  So ordered.

Avancña, C. J., Villa-Real, Abad Santos, Imperial, Laurel, and Conception, JJ., concur.


February 25,1937


In its motion for reconsideration, the defendant-appellee Viuda e Hijos de Angel  Jose again insists in its desire to prove to this court that, being clearly  a third person with respect to the trust receipt agreement,  Exhibit A-1,  entered into between Coleman Petroleum Products Co.,  Inc. and  the  appellant bank, it should not be affected in the least  by  the conditions and stipulations  contained therein on the ground that, as said document is not a public instrument, it is  binding only  upon the  parties who executed it, that is Coleman Petroleum Products Co., Inc. and the appellant.  In support of  its contention, it  invokes articles 1257 and  1526 of the Civil Code which read as follows:
"ART. 1257. Contracts shall be binding only upon the parties who execute them and their heirs, excepting, with respect to the latter, cases in which the rights and obligations arising  from the contract are not transmissible, either in consequence of their nature, or by agreement, or by provision of law.

"Should  the contract contain any stipulation in favor of a third person, he  may demand its fulfillment, provided he has given notice of his acceptance to the person bound before the stipulation has  been revoked."

"Art.  1526.  The assignment of a credit, right, or action shall produce no effect as against third persons except from the time its date  may be deemed fixed, in accordance with articles  1218 and 1227.

"If such assignment involves real property, from the date of its record in the Registry of Deeds."
The appellee Viuda e Hijos de Angel Jose is not a third person in the eyes of  the  law because its right to the sum in  question is  the same as that which Coleman Petroleum Products Co., Inc. had at the time of the execution therein of  the judgment obtained  by it in its favor in a separate case, and it has already been stated that the latter's right was subject to that of the appellant bank by virtue of the conditions stipulated  in the trust  receipt,  Exhibit A-1, which is supported by the  documents appearing in the record as Exhibits R and T.  Viuda e Hijos de  Angel Jose is merely a successor  in  interest  of Coleman Petroleum Products Co., Inc., which has been subrogated  in place of or  has substituted the latter in its rights to the sum in question by virtue of the  judgment  obtained by it  in its favor.  A successor in interest  is not a third person who may be benefited by the terms of either article 1526 or article 1227 of the  Civil Code because he is bound,  in the same manner as the person executing the private document from whom he  derives his right, to that to which the latter bound himself  therein.  The law provides that a private document, legally acknowledged, has the same weight as a public document between the parties thereto and their successors in interest (article 1225, Civil Code).

  The appellee, Viuda e Hijos de Angel Jose, contends that it enjoys preference to collect its judgment credit in the amount in  question because,  inasmuch as Coleman Petroleum Products Co., Inc. failed  to reveal the name of the person for whom it acted, it must necessarily be considered the owner of the gasoline the proceeds of the sale of which are now in dispute, it being claimed  for themselves adversely to one another by the appellant bank and the appellee Viuda e Hijos de Angel Jose, the former basing its claim upon its trust receipt, Exhibit A-1, and the latter upon its judgment against  Coleman Petroleum Products Co., Inc. The appellee Viuda e Hijos de Angel Jose invokes articles 246 of the Code of Commerce and 1717 of the Civil  Code in support of its contention.

The argument offered by it is not new, being a repetition of that already adduced by it in its brief, and does not convince this court for the reasons already stated  in the judgment  Coleman Petroleum Products Co., Inc. neither a com- mission merchant nor an agent in the sense these words are used in articles  246  et seq. of the Code of Commerce and 1717  of  the Civil Code.  The  true relation that  existed between the appellant bank and Coleman Petroleum Products Co., Inc. was no more nor less than that of an importer and a banker referred to in the considerations made by the court, which decided the case cited in the judgment  (People vs.  Yu Chai Ho  [1928], 53 Phil.,  874, 876), in the case of In re Dunlap  Carpet Co. (206 Fed., 726).

For all the foregoing, and inasmuch  as the motion for reconsideration  of the  appellee, Viuda  e Hijos de Angel Jose, is without merit, this  court resolves to deny it as it is hereby denied.  So ordered.

Avanceña, C J., Villa-Real, Abad Santos, Imperial,  Laurel, and Concepcion, JJ., concur.