G.R. No. L-6342 - Philippine National Bank vs. Atendido

On June 26, 1940, Laureano Atendido secured a loan of P3,000 from the Philippine National Bank with an interest rate of 6% per annum.
The loan was to be repaid in 120 days from the date of maturity.
To guarantee the obligation, the defendant pledged 2,000 cavanes of palay.
The pledged palay were deposited in the warehouse of Cheng Siong Lam & Co. in San Miguel, Bulacan.
In connection with the pledge, a warehouse receipt (No. S-1719) was endorsed in blank in favor of the bank.

Prior to the loan’s maturity, the 2,000 cavanes of palay disappeared from the warehouse for reasons that remained unknown.
Upon maturity of the loan, Laureano Atendido failed to pay the principal or the accrued interest.
As a result of non-payment, the Philippine National Bank instituted an action to recover the loan proceeds along with interest and costs, based on the security provided by the palay.

The defendant argued that since the warehouse receipt covering the palay had been endorsed in blank and given to the bank, the bank’s possession of the receipt allegedly transferred its title or ownership.
As a corollary, the defendant claimed he was relieved of his obligation to pay the loan amount.
Further, the defendant counterclaimed that he was entitled to recovery of the difference between the value of the lost palay and his outstanding debt, asserting that the loss shifted the burden of risk.

The Court of First Instance rendered judgment ordering the defendant to pay the sum of P3,000 with interest at 6% per annum from June 26, 1940, and the costs of the action.
The defendant appealed the decision to the Court of Appeals, but the case was eventually certified to the Supreme Court on the ground that the primary issue was one of law.
The lower courts, upon reviewing the matter, maintained that the warehouse receipt was delivered merely as a guarantee, not as a transfer of ownership.

Whether the surrender and subsequent endorsement in blank of the warehouse receipt by the defendant to the bank resulted in a transfer of ownership/title of the pledged palay.
Alternatively, whether the transfer was solely a guarantee to secure the repayment of the loan obligation.

Whether the loss of the 2,000 cavanes of palay should be borne by the borrower (pledgor) given the nature of the pledge contract.
Whether the bank, as the holder of the warehouse receipt, had any right to appropriate the lost commodity or claim indemnity for the difference in its value.