G.R. No. L-43619 - Luzon Brokerage Corp. vs. Court of Appeals

The proceedings originated from a Field Warehouse Storage Agreement executed between Luzon Brokerage Corporation (LUZON) and Pacific Copra Export Co., Inc. (PACOCO).
Under the agreement, LUZON undertook to operate field warehouses in Davao City and Mati, Davao, which were necessary for the storage of copra.
PACOCO later leased two warehouses to LUZON under separate "Field Warehouse Lease" contracts, one of which was located at Zamora Street, Mati, Davao City.

In connection with the storage operations, LUZON received quantities of copra resecada from PACOCO and issued corresponding Field Warehouse Receipts.
Two specific warehouse receipts were highlighted:

Field Warehouse Receipt No. 917 – acknowledging receipt of 500 long tons of copra resecada at Warehouse No. 8-DM, Mati, Davao, for the account of and to be delivered without surrender upon written order of the Bank of America, NT & SA, Manila for Wells Fargo Bank, San Francisco, as pledgee for Paxsmo, Inc., covering a Letter of Credit.
Field Warehouse Receipt No. 997 – acknowledging receipt of 250 long tons of copra resecada at the same warehouse, similarly subject to instructions involving the Philippine National Bank, Manila, for Wells Fargo Bank, San Francisco, as pledgee for Paxsmo, Inc., also covering a Letter of Credit.

Both receipts contained a stipulation that the deposited copra was “subject to lien for storage, handling and other charges, as per contract and lease with the industry served.”

Approximately four years into the contract, LUZON learned that Manila Banking Corporation (MANILABANK) had requested the Provincial Sheriff of Davao to auction 42 tons of the copra stored in the Mati warehouse.
The sale was intended to satisfy PACOCO’s indebtedness incurred through:

An Overdraft Agreement secured by a Deed of Assignment of Inventory, which included 4,100 long tons of copra deposited in various warehouses, with a portion (600 long tons) in Mati, Davao.
An Amendment of the Overdraft Agreement where PACOCO executed a chattel mortgage over all its deposited copra, including that in Mati, Davao.

LUZON promptly filed suit in the Court of First Instance of Davao against MANILABANK, PACOCO, and the Davao Provincial Sheriff.
In its complaint, LUZON contended:

Under the terms of the warehouse receipts and the Warehouse Receipts Law (Act No. 2137), it had a right to retain possession of the copra until the lien for storage, handling, and other charges was satisfied.
It was obligated to deliver the copra only upon surrender of the receipts or written order of the entities named therein.
MANILABANK and/or PACOCO were threatening to sell at public auction at least 42 tons of copra without satisfying the lien, surrendering the receipts, or obtaining the necessary consents.

LUZON sought a preliminary and later a perpetual injunction to prevent the sale and molestation of the copra, and also prayed for damages including attorney’s fees and litigation expenses.

The Court of First Instance initially granted a preliminary injunction but later allowed the sale of the copra by agreement, with the proceeds held by MANILABANK subject to final disposition by the Court.
MANILABANK, appearing in its answer and amended answer with a compulsory counterclaim, maintained that:

Its request to auction the copra was within its rights as the registered chattel mortgagee, and there was no obligation to obtain consent from LUZON or the entities named in the receipts.
The terms of the warehousing agreement required adjustments and presentation of invoices to demand storage and handling charges, a point not adequately alleged in LUZON’s complaint.

The Trial Court ruled in favor of LUZON, declaring that the disputed copra was not part of PACOCO’s mortgaged property to MANILABANK, and ordered the proceeds of the sale to be applied in favor of LUZON after deducting storage charges.
On appeal, the Court of Appeals initially affirmed the Trial Court’s decision but later, upon MANILABANK’s motion for reconsideration, set aside the original judgment.
The revised resolution by the Court of Appeals:

Dismissed LUZON’s complaint.
Condemned LUZON to pay MANILABANK actual damages, attorneys’ fees, and costs.
Based its findings on evidence that PACOCO, not LUZON, was the owner of the copra.
Held that there was no valid pledge agreement between Paxsmo Inc. or Wells Fargo Bank with respect to the copra.
Concluded that LUZON was not a bona fide warehouseman but rather an employee or dummy of PACOCO.

LUZON appealed to the Supreme Court, disputing the Appellate Court’s factual findings concerning:

Ownership of the 42 tons of copra.
Existence of any pledge over the copra.
Whether the copra was included among those mortgaged to MANILABANK.
LUZON’s status as a bona fide warehouseman versus being merely a proxy for PACOCO.

Ultimately, the Supreme Court denied LUZON’s petition for review, affirming the Appellate Court’s Resolution and its underlying factual determinations.

Does the evidence conclusively establish that PACOCO is the owner of the disputed 42 tons of copra?
Was the copra in question among those subject to the chattel mortgage executed by PACOCO in favor of MANILABANK?

Do the stipulations contained in the Field Warehouse Receipts (including the instructions for delivery without surrender upon written order) give rise to a pledge that could override the rights of MANILABANK?
Can the warehouseman’s role provide a separate right to the copra apart from the underlying contractual and mortgage arrangements?

Was LUZON acting as a bona fide warehouseman entitled to claim the proceeds from the sale of the copra, or was it merely an employee/dummy of PACOCO without independent rights over the stored commodity?
What is the proper remedy available to a party in LUZON’s position in the face of competing claims over the copra?