G.R. No.

107243 September 1, 1993

PHILIPPINE NATIONAL BANK vs.NOAH'S ARK SUGAR REFINERY, ALBERTO T. LOOYUKO, JIMMY T. GO,
WILSON T. GO
NARVASA, C.J.:
cvflores

Short Version:
Facts:
Noah issued quedans to its vendees who in turn negotiated it to PNB. When PNB tried to demand the
sugar covered by the quedans, Noah refused because the check its vendees issued for the quedans were
dishonoured.

Held:
Noah should deliver the quedans to PNB. The fact that Noah was not paid does not make the
negotiation to PNB invalid since PNB paid value in good faith.

Facts:
In accordance with the Warehouse Receipts Law, Noah's Ark Sugar Refinery (Noah) issued on
several dates warehouse receipts (quedans) to Rosa Sy, RNS Merchandising (Rosa Ng Sy) and St.
Therese Merchandising
RNS and St Therese Merchandising negotiated and indorsed its quedans to Luis T. Ramos and
Cresencia Zoleta
Zoleta and Ramos then used the quedans as security for loans obtained by them from PNB in the
amounts of P23.5 million and P15.6 million, respectively. These quedans they indorsed to the bank.
Both Zoleta and Ramos failed to pay their loans upon maturity
PNB wrote to Noah demanding delivery of the sugar covered by the quedans
Noah's Ark refused to comply with the demand
PNB filed with the RTC a verified complaint for "Specific Performance with Damages and Application
for Writ of Attachment" against Noah's Ark, Alberto T. Looyuko, Jimmy T. Go, and Wilson T. Go, the
last three being identified as "the Sole Proprietor, Managing Partner and Executive Vice President of
Noah, respectively."
RTC denied the application for preliminary attachment
Noah and its co-defendants claimed that they are still the legal owners of the quedans and the
sugar represented thereon because:
the P63M check issued by Rosa Ng Sy of RNS and Teresita Ng of St. Therese
Merchandising for the quedans were dishonoured by reason of "payment stopped" and
"drawn against insufficient funds
Since the vendees and first indorsers of quedans did not acquire ownership, the
subsequent indorsers and PNB did not acquire a better right of ownership than the
original vendees/first indorsers.
That 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.
Noah also asked that the quedans be delivered or returned to them
Rosa Ng Sy and Teresita Ng claims that the transaction between them and Noah was "bogus and
simulated complex banking schemes and financial maneuvers and that it was to avoid payment of
taxes considering that Noah is under sequestration by the PCGG
PNB filed a "Motion for Summary Judgment and prayed for the delivery of the sugar stocks covered
by the Warehouse Receipts/Quedans which are now in the PNBs possession as holder for value and
in due course; or alternatively, for payment of actual damages of P39.1M to pay plaintiff attorney's
fees, litigation expenses and judicial costs estimated at no less than P1M and such other reliefs just
and equitable under the premises.
RTC denied the motion for summary judgment on the ground:
that there exists conflicting claims among the parties relative to the ownership of the
sugar quedans as to whether or not the quedans falls within the coverage of the
Warehouse Receipt Law and whether or not the transaction between PNB and third
party defendants (Sy ans Ng) is governed by contract of pledge that would require PNBs
compliance with Art. 2112, Civil Code as regards the disposition of the quedans
PNB filed a petition for certiorari with the CA
CA nullified RTC order and ordered that "summary judgment be rendered in favor of the PNB
CA ruled that "questions of law should be resolved after and not before, the questions of fact.
Noah moved for reconsideration, but their motion was denied by the CA
RTC rendered judgment, but not in accordance with the decision of the CA since it dismissed PNBs
complaint for lack of cause of action

Issue:
1. Whether the non-payment of the purchase price for the quedans by the original vendees rendered
invalid the negotiation by vendees/first indorsers to indorsers and the subsequent negotiation of
Ramos and Zoleta to PNB.
2. Whether or not PNB as indorsee/ pledgee of quedans was entitled to delivery of sugar stocks from
the warehouseman, Noah's Ark."

Ruling:
1. The non-payment of the purchase price does not render the subsequent negotiation invalid. The
validity of the negotiation in favour of PNB cannot be impaired even if the negotiation between
Noah and its first vendees was in breach of faith on the part of the vendees or by the fact that Noah
was deprived of the possession of the same by fraud, mistake or conversion if PNB paid value in
good faith without notice of such breach of duty, fraud, mistake or conversion. (Article 1518, New
Civil Code).
2. PNB is entitled to the delivery of the sugar covered by the quedans. PNB whose debtor was the
owner of the quedan shall be entitled to such aid from the court of appropriate jurisdiction
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). If the quedans were negotiable in form and duly indorsed to PNB (the
creditor), the delivery of the quedans to PNB makes the PNB the owner of the property covered by
said quedans and on deposit with Noah, the warehouseman. PNB's right to enforce the obligation
of Noah 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 an act of RNS
Merchandising and St. Therese Merchandising, in breach of trust, fraud or conversion against Noah's
Ark.

SC also held that the quedans were negotiable documents and had been duly negotiated to the PNB
which acquired the rights set out in Article 1513 of the Civil Code:

1. Such title to the goods as the person negotiating the documents 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.