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Warehouse Receipts Law

4. Gonzales v Go Tiong and Luzon Surety Co., 104 Phil. 492 (1958)

De Leon Book: Contract converted to ordinary deposit. — The issuance of a warehouse

receipt in the form provided by the law is merely permissive and directory and not
mandatory in the sense that if the requirements are not observed, then the goods
delivered for storage become ordinary deposits. (Gonzales vs. Go Tiong and Luzon
Surety Co., 104 Phil. 492 [1958].)

RAMON GONZALES,plaintiff-appellee, vs. GO TIONG and LUZON SURETY CO.,


Facts: Go Tiong owned a rice mill and warehouse, located at Mabini, Urdaneta, Pangasinan.
He obtained a license of a bonded businessman with Luzon Surety Co., with conditions he
failed to fulfill. The warehouse and palay deposited therein were insured with the Alliance
Surety and Insurance Company. Ramon Gonzales deposited palay to Go Tiong even
before he got the license who later demanded the value of his deposits. But GoTiong
failed to give him his value until fire burned down the warehouse, with sacks in excess of that
was authorized under his license. The receipts issued to Gonzales were ordinary receipts and
not the warehouse receipts as defined by Warehouse receipts act. Plaintiff filed their claims with
the Bureau of Commerce and the proceeds of the insurance policy, BOC paid off some claims.
Plaintiff’s counsel withdrew the claims, because according to court nothing came from
plaintiff's efforts to have his claim paid, inconsistent with what Go Tiong claimed that it
was denied Gonzales filed claims both against Gonzales and Luzon Surety, and renewed
his claim with BOC. Gonzales and Go Tiong entered into a contract of amicable
settlement to the effect that upon the settlement of all accounts, but upon failure to comply,
Gonzales prosecuted his court action. Court ruled in favor of Gonzales. Hence this appeal.

Issue:Is the plaintiff’s claim covered by the Civil Law, and not Bonded Warehouse Act for the
reason that, GoTiong issued to plaintiff were ordinary receipts, not the warehouse receipts
contemplated by the Warehouse Receipts Law, and because the deposits of palay of plaintiff
were gratuitous?

Ruling: Consequently, any deposit made with him as a bonded warehouseman must
necessarily be governed by the provisions of Act No. 3893.Though it is desirable that receipts
issued by a bonded warehouseman should conform to the provisions of the Warehouse
Receipts Law, said provisions are not mandatory and indispensable in the sense that if they fell
short of the requirements of the Warehouse Receipts Act, then the commodities delivered for
storage become ordinary deposits and will not be governed by the provisions of the Bonded
Warehouse Act. As the trial courtwell observed, as far as Go Tiong was concerned, the fact
that the receipts issued by him were not "quedans" is no valid ground for defense
because he was the principal obligor. Furthermore, as found by the trial court, Go Tiong had
repeatedly promised plaintiff to issue to him "quedans" and had assured him that he
should not worry; and that Go Tiong was in the habit of issuing ordinary receipts
(not"quedans") to his depositors. Considering the fact, as already stated, that prior to the
burning of the warehouse, plaintiff demanded the payment of the value of his palay from
Go Tiong on two occasions but was put off without any valid reason, it is illogical and
unreasonable to hold that the presumption of negligence in case of this kind is rebutted by the
bailee by simply proving that the property bailed was destroyed byan ordinary fire which broke
out on the bailee's own premises, without regard to the care exercised by the latter to prevent
the fire, or to save the property after the commencement of the fire. Besides, as observed by
the trial court, the defendant violated the terms of his license by accepting for deposit palay
in excess of the limit authorized by his license, which fact must have increased the
risk. Appealed decision affirmed.

5. Lu Kuan vs. Manila Railroad Co. and Manila Port Service, 19 Scra 5 (1967)

Arrastre operator who received into its custody shipment of cases of milk for two
consignees delivered cases more than as per markings but less as per bill of lading to
one of them.

Facts: A (arrastre operator) received into its custody a shipment of 5,000 cases of milk, of
which 3,171 cases were marked for B, as consignee, and 1,829 cases were marked for C, but,
according to the bills of lading in A’s possession, B was entitled only to 3,000 cases and C to
2,000 cases. A actually delivered 1,913 cases to C which is only 87 cases short of 2,000 cases
as per bill of lading.

The present suit was filed by Lua Kian against the Manila Railroad Co. and Manila Port Service
for the recovery of the invoice value of imported evaporated "Carnation" milk alleged to have
been undelivered. The following stipulation of facts was made:

1. They admit each other's legal personality, and that during the time material to this action,
defendant Manila Port Service as a subsidiary of defendant Manila Railroad Company operated
the arrastre service at the Port of Manila under and pursuant to the Management Contract
entered into by and between the Bureau of Customs and defendant Manila Port Service on
February 29, 1956;

2. On December 31, 1959, plaintiff Lua Kian imported 2,000 cases of Carnation Milk from the
Carnation Company of San Francisco, California, and shipped on Board SS "GOLDEN BEAR"
per Bill of Lading No. 17;

3. Out of the aforesaid shipment of 2,000 cases of Carnation Milk per Bill of Lading No. 17, only
1,829 cases marked `LUA KIAN 1458' were discharged from the vessel SS `GOLDEN BEAR'
and received by defendant Manila Port Service per pertinent tally sheets issued by the said
carrying vessel, on January 24, 1960;
4. Discharged from the same vessel on the same date unto the custody of defendant Manila
Port Service were 3,171 cases of Carnation Milk marked "CEBU UNITED 4860-PH-MANILA"
consigned to Cebu United Enterprises, per Bill of Lading No. 18, and on this shipment, Cebu
United Enterprises has a pending claim for short-delivery against defendant Manila Port

5. Defendant Manila Port Service delivered to the plaintiff thru its broker, Ildefonso Tionloc, Inc.
1,913 cases of Carnation Milk marked "LUA KIAN 1458" per pertinent gate passes and broker's
delivery receipts;

6. A provisional claim was filed by the consignee's broker for and in behalf of the plaintiff on
January 19, 1960, with defendant Manila Port Service;

7. The invoice value of the 87 cases of Carnation Milk claimed by the plaintiff to have been
short-delivered by defendant Manila Port Service is P1,183.11 while the invoice value of the 87
cases of Carnation Milk claimed by the defendant Manila Port Service to have been over-
delivered by it to plaintiff is P1,130.65;

8. The 1,913 cases of Carnation mentioned in paragraph 5 hereof were taken by the broker at
Pier 13, Shed 3, sometime in February, 1960, where at the time, there were stored therein,
aside from the shipment involved herein, 1000 cases of Carnation Milk bearing the same marks
and also consigned to plaintiff Lua Kian but had been discharged from SS `STEEL ADVOCATE'
and covered by Bill of Lading No. 11;

9. Of the shipment of 1000 cases of Carnation Milk which also came from the Carnation
Company, San Francisco, California, U.S.A. and bearing the same marks as the shipment
herein but had been discharged from S/S "STEEL ADVOCATE" and covered by Bill of Lading
No. 11, Lua Kian as consignee thereof filed a claim for short-delivery against defendant Manila
Port Service, and said defendant Manila Port Service paid Lua Kian plaintiff herein, P750.00 in
settlement of its claim;

10. They reserve the right to submit documentary evidence;

11. They submit the matter of attorney's fees and costs to the sound discretion of the Court.

Issue: Is A (arrastre operator) liable to C for the undelivered cases of milk?

Ruling: Yes. The legal relationship between an arrastre operator and the consignee is akin to
that of a depositor and warehouseman.

As custodian of the goods discharged from the vessel, it was A’s duty like that of any other
depositary to take good care of the goods and to turn them over to the party entitled to their
possession. Under this particular set of circumstances, A should have withheld delivery because
of the discrepancy between the bill of lading and the markings and conducted its own
investigation not unlike that under Section 18 of the Warehouse Receipts Law, or called upon
the parties to interplead such as in case under Section 17 of the same law, in order to determine
the rightful owner of the goods. (Lu Kian vs. Manila Railroad Co. and Manila Port Service, 19
SCRA 5 [1967].) (book)

It is true that Section 12 of the Management Contract exempts the arrastre operator from
responsibility for misdelivery or non-delivery due to improper or insufficient marking. We cannot
however excuse the aforestated defendant from liability in this case before Us now because the
bill of lading showed that only 3,000 cases were consigned to Cebu United Enterprises. The fact
that the excess of 171 cases were marked for Cebu United Enterprises and that the
consignment to Lua Kian was 171 cases less than the 2,000 in the bill of lading, should have
been sufficient reason for the defendant Manila Port Service to withhold the goods pending
determination of their rightful ownership.

We therefore find the defendants liable, without prejudice to their taking whatever proper legal
steps they may consider worthwhile to recover the excess delivered to Cebu United Enterprises.

With respect to the attorney's fees awarded below, this Court notices that the same is about 50
per cent of the litigated amount of P1,183.11. We therefore deem it reasonable to decrease the
attorney's fees to P300.00.

Wherefore, with the aforesaid reservation, and with the modification that the attorney's fee is
reduced to P300.00, the judgment appealed from is affirmed, with costs against appellants. So

For Guaranty and Suretyship

1. Velasquez v Solidbank Corp., 550 Scra 119 (2008)

Characteristics of the contract.

The following are its characteristics:

(1) It is accessory because it is dependent for its existence upon the principal obligation
guaranteed by it;

(2) It is subsidiary and conditional because it takes effect only when the principal debtor fails in
his obligation subject to limitation (see Arts. 2053, 2058, 2063, 2065.);

(3) It is unilateral because —

(a) it gives rise only to a duty on the part of the guarantor in relation to the creditor and not vice
versa although after its fulfi llment, the principal debtor becomes liable to indemnify

the guarantor1 (Art. 2066.) but this is merely an incident of the contract; and also because

(b) it may be entered into even without the intervention of the principal debtor (Art. 2050.); and

(4) It is a contract which requires that the guarantor must be a person distinct from the
debtor because a person cannot be the personal guarantor of himself. A person cannot
be both the primary debtor and the guarantor of his own debt as this is inconsistent with
the very purpose of a guarantee which is for the creditor to proceed against a third
person if the debtor defaults in his obligation. (Velasquez vs. Solidbank Corporation, 550
SCRA 119 [2008].) (book) However, in real guaranty, like pledge (Art. 2093.) and mortgage
(Art. 2124.), a person may guarantee his own obligation with his personal or real
properties. (see 12 Manresa 155-156.)

Facts: The case is out of a business transaction for the sale of dried sea cucumber for export
to South Korea between Wilderness Trading (of Velasquez), as seller, and Goldwell Trading of
Pusan, South Korea, as buyer. To facilitate payment of the products, Goldwell Trading opened a
letter of credit in favor of Wilderness Trading with the Bank of Seoul, Pusan, Korea.

Petitioner applied for credit accommodation with Solidbank for pre-shipment financing. The
credit accommodation was granted. Petitioner was successful in his first two export transactions
both drawn on the letter of credit. The third export shipment, however, yielded a different result.
Petitioner submitted to Solidbank the necessary documents for his third shipment. Wanting to
be paid the value of the shipment in advance, petitioner negotiated for a documentary sight draft
to be drawn on the letter of credit, chargeable to the account of Bank of Seoul. The sight draft
represented the value of the shipment.

As a condition for the issuance of the sight draft, petitioner executed a letter of undertaking in
favor of respondent. Under the terms of the letter of undertaking, petitioner promised that the
draft will be accepted and paid by Bank of Seoul according to its tenor. Petitioner also held
himself liable if the sight draft was not accepted.

Respondent failed to collect on the sight draft as it was dishonored by non-acceptance by the
Bank of Seoul. The reasons given for the dishonor were late shipment, forged inspection
certificate, and absence of countersignature of the negotiating bank on the inspection
certificate.Goldwell Trading likewise issued a stop payment order on the sight draft because
most of the bags of dried sea cucumber exported by petitioner contained soil.

Due to the dishonor of the sight draft and the stop payment order, respondent demanded
restitution of the sum advanced. Petitioner failed to heed the demand.
Solidbank filed a complaint for recovery of sum of money with the RTC. In his answer, petitioner
alleged that his liability under the sight draft was extinguished when respondent failed to protest
its non-acceptance, as required under the Negotiable Instruments Law (NIL). He also alleged
that the letter of undertaking is not binding because it is a superfluous document, and that he
did not violate any of the provisions of the letter of credit.

RTC rendered judgment in favor of respondent. The CA affirmed with modification. hence this

Issue: WON not petitioner should be held liable to respondent under the sight draft or the letter
of undertaking.

Ruling: petition denied. YES; letter of undertaking

Admittedly, petitioner was discharged from liability under the sight draft when respondent failed
to protest it for non-acceptance by the Bank of Seoul. A sight draft made payable outside the
Philippines is a foreign bill of exchange. When a foreign bill is dishonored by non-acceptance or
non-payment, protest is necessary to hold the drawer and indorsers liable. Verily, respondent’s
failure to protest the non-acceptance of the sight draft resulted in the discharge of petitioner
from liability under the instrument.

Petitioner, however, can still be made liable under the letter of undertaking. It bears
stressing that it is a separate contract from the sight draft. The liability of petitioner under the
letter of undertaking is direct and primary. It is independent from his liability under the sight
draft. Liability subsists on it even if the sight draft was dishonored for non-acceptance or non-

Respondent agreed to purchase the draft and credit petitioner its value upon the undertaking
that he will reimburse the amount in case the sight draft is dishonored. The bank would certainly
not have agreed to grant petitioner an advance export payment were it not for the letter of
undertaking. The consideration for the letter of undertaking was petitioner’s promise to pay
respondent the value of the sight draft if it was dishonored for any reason by the Bank of Seoul.


We cannot accept petitioner’s thesis that he is only a mere guarantor under the letter of credit.
Petitioner cannot be both the primary debtor and the guarantor of his own debt. This is
inconsistent with the very purpose of a guarantee which is for the creditor to proceed against a
third person if the debtor defaults in his obligation. Certainly, to accept such an argument would
make a mockery of commercial transactions.