G.R. No. 16483 - Philippine Trust Co. vs. Philippine National Bank

The case involves two corporate parties domiciled in Manila: the Philippine Trust Company, acting as assignee of the insolvent Salvador Hermanos, and the Philippine National Bank.
Salvador Hermanos, originally a copartnership, executed eight promissory notes in January 1919 payable to the defendant bank for a total of P156,000.
Each promissory note was secured by a quedan (warehouse receipt) issued by Nieva, Ruiz & Company, pledging specified amounts of copra, measured in piculs.

The promissory notes contained detailed descriptions of the collateral: each note mentioned the specific quedan number, the copra quantity (in piculs), and contained a contractual clause empowering the bank to sell or otherwise deal with the pledged property without notice in case of default.
The notes were written “payable on demand” after a certain date and included a waiver of any right of redemption by the undersigned, transferring both title and possession under the terms of the pledge.

All eight warehouse receipts were initially delivered to the bank as collateral security. Specific receipts corresponded to specific promissory notes; for example, receipts Nos. 30, 35, 38, 41, and 42 secured various notes, while receipts Nos. 33, 36, and 39 secured three notes of P18,000 each.
On February 10, 1919, with the bank’s consent, Salvador Hermanos withdrew receipts Nos. 33, 36, and 39 by executing a writing that acknowledged receipt of the warehouse receipts and promised them to be returned by a specific date.
Attached to this withdrawal was a certificate (dated February 8, 1919) listing articles of merchandise in the firm’s bodegas, effectively stating that the property was in the firm’s custody and that no removal would be made without consulting the bank. Neither the receipt nor the certificate was notarized or authenticated by a competent public official.

Later, on or about May 3, 1919, Gregorio Salvador of Salvador Hermanos arranged for additional goods to be warehoused with Nieva, Ruiz & Company, resulting in the issuance of a new series of quedans (Nos. 161 to 185) in favor of the bank, covering various items such as hemp, rattan, empty sacks, almaciga, kapok, talcum powder, and cartulina.
Between May 6, 1919, and August 7, 1919, the bank sold all personal property delivered in pledge except for the three receipts withdrawn on February 10, 1919.
On April 21, 1919, Salvador Hermanos filed a petition of insolvency under Act No. 1956 of the Philippine Legislature. The petition detailed additional pledges of property and merchandise, with a notable schedule citing various articles and their declared values.
As a consequence of the insolvency petition, in July 1919, the Philippine Trust Company was elected and qualified as the assignee of Salvador Hermanos, thereby representing both the creditors and the insolvent firm.
On September 13, 1919, acting as the assignee, the Philippine Trust Company demanded the surrender and delivery of all property evidenced by the warehouse receipts. When the bank refused, the Trust Company initiated the present action to recover the alleged monetary value of the property, claiming wrongful seizure and conversion.

The dispute centers on determining the rightful owner and possessor of the collateral property pledged by Salvador Hermanos.
The controversy splits into two causes of action:

The first relating to the property associated with the original eight promissory notes and the corresponding quedans delivered in January 1919.
The second concerning the property evidenced by the additional warehouse receipts (Nos. 161 to 185) and the sale of certain items (notably gasoline) after the insolvency petition.

Whether the bank, by receiving the negotiable warehouse receipts (quedans), acquired both title and possession of the pledged property as collateral security for the promissory notes.
Whether the return of three receipts on February 10, 1919, affected the bank’s title to the remaining property and its subsequent authority to sell and hence convert such property.

Whether the delivery of property via warehouse receipts, even in the absence of notarization, perfected the pledge according to the Civil Code (particularly referencing articles 1216 and 1863).
Whether the bank’s acts of selling the collateral property, including part of the property represented by the additional warehouse receipts (Nos. 161 to 185), were legally valid given the timing of the insolvency petition and the firm’s inability to secure further debt after its filing.

Whether the filing of the insolvency petition on April 21, 1919, effectively suspended any further right of Salvador Hermanos to dispose of or reclaim the pledged property, especially in light of subsequent actions by the bank.
Whether the bank’s authority to sell and convert the pledged property was maintained despite the insolvency proceedings, particularly regarding the property not in its possession (as evidenced by the February 8 certificate).