PNB v. NOAH’S ARK SUGAR REFINERY G.R. No.

107243

01 Sept. 1993 Narvasa, C.J.

TOPIC IN SYLLABUS: Warehouse Receipts Law

SUMMARY: PNB extended loans to Ramos and Zoleta secured by warehouse receipts ( quedans) issued by
Noah’s Ark. When the two defaulted, PNB asked Noah’s Ark for delivery of the sugar covered by the
quedans. Noah’s Ark refused, claiming that the original vendees to whom the quedans were issued failed to
pay for the sugar stored at the refinery (checks issued as payment were dishonored). SC held that the validity
of the negotiation of the quedans by the original vendees to Ramos and Zoleta, and the subsequent
negotiation to PNB, cannot be impaired by any breach committed by the original vendees against Noah’s
Ark, as long as the indorsee (PNB in this case) paid value therefor in good faith without notice of such breach
of duty, fraud, mistake or conversion. (See Art. 1518 of the Civil Code below.)

PROCEDURAL ANTECEDENTS: Appeal by certiorari of the RTC’s decision rendering summary judgment
dismissing the complaint of PNB against Noah’s Ark et al.

FACTS:
● 1989 – Noah’s Ark Sugar Refinery issued several warehouse receipts ( quedans) substantially in the
form prescribed by the Warehouse Receipts Law (Act No. 2317) for negotiable warehouse receipts.
The quedans covered sugar deposited by different persons.
● Two of these quedans (covering sugar deposited by RNS Merchandising) were negotiated and
indorsed to Luis Ramos. Another three (covering sugar of St. Therese Merchandising, RNS
Merchandising, and Rosa Sy) were negotiated to Cresencia Zoleta. Ramos and Zoleta then endorsed
the quedans to the Philippine National Bank (PNB) as security for their loans in the amounts of P15.6
million and P23.5 million, respectively.
● Ramos and Zoleta failed to pay their loans. PNB wrote to Noah’s Ark demanding delivery of the sugar
covered by the quedans. When Noah’s Ark refused, PNB filed a complaint for “Specific Performance
with Damages and Application for Writ of Attachment” against Noah’s Ark, its Sole Proprietor (Alberto
Looyuko), Managing Partner (Jimmy Go), and Executive Vice President (Wilson Go).
● Respondents’ answer incorporated a third party complaint against the original vendees, Rosa Sy and
Teresita Ng, praying for the return of the quedans and payment of damages and costs.
● PNB filed a Motion for Summary Judgment. This was denied by the RTC but granted by the CA on
certiorari. RTC then rendered a Summary Judgment, but against the decision of the CA ordering
summary judgment in favor of PNB, RTC decreed the dismissal of the complaint.
ISSUE: W/N PNB is entitled to summary judgment and the delivery of the sugar covered by the quedans.

PETITIONER NOAH’S ARK ET AL. ARGUE::

1. They are still the legal owners of the subject quedans and the sugar covered. For P63 million, they
agreed to sell the total volume of sugar stored at Noah’s Ark for to Rosa Sy of RNS Merchandising
and Teresita Ng of St. Therese Merchandising. However, the checks issued by the vendees as
payment were dishonored by the drawee banks. Considering that the vendees and first indorsers of
the quedans did not acquire ownership thereof, the subsequent indorsers (including PNB) could not
have acquired a better right of ownership.
2. PNB knows that subject quedans are not negotiable instruments within the purview of the Warehouse
Receipts Law but simply an internal guarantee of defendants in the sale of their stocks of sugar.

HELD: Yes, PNB is entitled to the delivery of the quedans (as well as summary judgment in its favor).

VILLARAMA, BINKEE
COM LAW REV CASE #128
1. The quedans were duly negotiated to PNB which thereby acquired the rights set out in NCC Art. 15131.
● The CA was correct in ruling that: “PNB’s right to enforce the obligation of Noah’s Ark as a
warehouseman, to deliver the sugar stock to PNB as holder of the quedans, does not depend on the
outcome of the third-party complaint because the validity of the negotiation transferring title to
the goods to PNB as holder of the quedans is not affected by any act of RNS Merchandising
and St. Therese Merchandising, in breach of trust, fraud or conversion against Noah’s Ark.”
● The validity of the negotiation by RNS Merchandising and St. Therese Merchandising to Ramos
and Zoleta, and by the latter to PNB cannot be impaired by the fact that the negotiation between
Noah’s Ark and RNS Merchandising and St. Therese Merchandising was made in breach of faith on
the part of the merchandising firms or by the fact that the owner (Noah’s Ark) was deprived of the
possession of the same by fraud, mistake or conversion of the person to whom the warehouse
receipt/quedan was subsequently negotiated if (PNB) paid value therefor in good faith without
notice of such breach of duty, fraud, mistake or conversion. (See Article 1518, New Civil Code).
o Art. 1518 of the Civil Code states: “Art. 1518. The validity of the negotiation of a negotiable
document of title is not impaired by the fact that the negotiation was a breach of duty on the
part of the person making the negotiation, or by the fact that the owner of the document was
deprived of the possession of the same by loss, theft, fraud, accident, mistake, duress, or
conversion, if the person to whom the document was negotiated or a person to whom
the document was subsequently negotiated paid value therefor in good faith without
notice of the breach of duty, or loss, theft, fraud, accident, mistake, duress or
conversion.”
● The creditor (PNB) whose debtor was the owner of the negotiable document of title (warehouse
receipt) shall be entitled to such aid from the court of appropriate jurisdiction in attaching such
document or in satisfying the claim by means as is allowed by law or in equity in regard to property
which cannot be readily attached or levied upon by ordinary process. (See Art. 1520, New Civil Code).
2. The factual bases underlying the defendants’ affirmative defenses (upon which PNB has moved for
summary judgment) are not disputed and have been stipulated by the parties and therefore do not require
presentation of evidence. Summary judgment is proper.
3. The judgment of the CA, having been rendered by a competent court within its jurisdiction, and having
become final and executory, now operates as the immutable law among the parties, the RTC judge
included; it has become the law of the case and may no longer, in subsequent proceedings, be altered or
modified in any way.

1 “(1) Such title to the goods as the person negotiating the document to him had or had ability to convey to a purchaser in
good faith for value and also such title to the goods as the person to whose order the goods were to be delivered by the
terms of the document had or had ability to convey to a purchaser in good faith for value; and
(2) The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms
of the document as fully as if such bailee had contracted directly with him.”
VILLARAMA, BINKEE
COM LAW REV CASE #128