Gonzales vs. Go Tiong

A deposit made with a licensed bonded warehouseman is governed by the Bonded Warehouse Act (Act No. 3893, as amended), regardless of whether the receipt issued is a formal warehouse receipt; the surety on the warehouseman's bond cannot escape liability for the warehouseman's breach merely because no prescribed warehouse receipt was issued, and an unconsummated amicable settlement does not discharge the surety.

Go Tiong owned a rice mill and warehouse in Mabini, Urdaneta, Pangasinan, and obtained a license to operate as a bonded warehouseman. Luzon Surety Co., Inc. executed Guaranty Bond No. 294 in the sum of P18,334 to secure Go Tiong's obligations to depositors under the Bonded Warehouse Act. Ramon Gonzales was a palay depositor who had transacted with Go Tiong. The case concerns the liability of a bonded warehouseman and his surety under Act No. 3893, as amended by Republic Act No. 247, and the Warehouse Receipts Act, Act No. 2137.

Go Tiong owned a rice mill and warehouse located at Mabini, Urdaneta, Pangasinan. On February 4, 1953, he obtained a license to engage in the business of a bonded warehouseman (Exhibit N). To secure the performance of his obligations as such bonded warehouseman, the Luzon Surety Co. executed Guaranty Bond No. 294 in the sum of P18,334 (Exhibit O) on January 26, 1953, conditioned particularly on the fulfillment by Go Tiong of his duty or obligation to deliver to the depositors in his storage warehouse the palay received by him for storage, at any time demand is made, or to pay the market value thereof, in case he was unable to return the same. Go Tiong insured the warehouse and the palay deposited therein with the Alliance Surety and Insurance Company.

Prior to the issuance of the license to Go Tiong to operate as bonded warehouseman, he had on several occasions received palay for deposit from plaintiff Gonzales, totaling 368 sacks, for which he issued receipts, Exhibits A, B, C, and D. After he was licensed as bonded warehouseman, Go Tiong again received various deliveries of palay from plaintiff, totaling 492 sacks, for which he issued the corresponding receipts, all the grand total of 860 sacks, valued at P8,600 at the rate of P10 per sack. The receipts issued by Go Tiong to the plaintiff were ordinary receipts, not the "warehouse receipts" defined by the Warehouse Receipts Act (Act No. 2137).

On or about March 15, 1953, plaintiff demanded from Go Tiong the value of his deposits in the amount of P8,600, but he was told to return after two days, which he did, but Go Tiong again told him to come back. A few days later, the warehouse burned to the ground. Before the fire, Go Tiong had been accepting deliveries of palay from other depositors and at the time of the fire, there were 5,847 sacks of palay in the warehouse, in excess of the 5,000 sacks authorized under his license.

After the burning of the warehouse, the depositors of palay, including plaintiff, filed their claims with the Bureau of Commerce, and it would appear that with the proceeds of the insurance policy, the Bureau of Commerce paid off some of the claim. Plaintiff's counsel later withdrew his claim with the Bureau of Commerce, according to Go Tiong, because his claim was denied by the Bureau, but according to the decision of the trial court, because nothing came from plaintiff's efforts to have his claim paid. Thereafter, Gonzales filed the present action against Go Tiong and the Luzon Surety for the sum of P8,600, the value of his palay, with legal interest, damages in the sum of P5,000 and P1,500 as attorney's fees. Gonzales later renewed his claim with the Bureau of Commerce (Exhibit S). While the case was pending in court, Gonzales and Go Tiong entered into a contract of amicable settlement to the effect that upon the settlement of all accounts due to him by Go Tiong, he, Gonzales, would have all actions pending against Go Tiong dismissed. Inasmuch as Go Tiong failed to settle the accounts, Gonzales prosecuted his court action.

The trial court found that 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. Go Tiong induced plaintiff to deposit his palay in the warehouse free of charge in order to promote his business and to attract other depositors, it being understood that because of this accommodation, plaintiff would convince other palay owners to deposit with Go Tiong. The trial court also found that the proof was not clear that the loss was by force majeure and without fault, and that Go Tiong's act of exceeding the limit of the authorized deposit must have increased the risk and militated against his defense of non-liability.

• Governing Law: Go Tiong argued that the trial court erred in finding that Gonzales's claim was covered by the Bonded Warehouse Law, Act No. 3893 as amended, rather than by the Civil Code.
• Exemption for Loss: Go Tiong argued that the trial court erred in not exempting him from liability for the loss of the deposited palay pursuant to the provisions of the New Civil Code.
• Material Alteration of Bond: Luzon Surety argued that the amicable settlement between Gonzales and Go Tiong constituted a material alteration of its surety bond, extinguishing and discharging its liability.
• Ordinary Receipts: Luzon Surety argued that the trial court erred in holding that the receipts for palay received by Go Tiong, though not in the form of "quedans" or warehouse receipts, were chargeable against the surety bond filed under the General Bonded Warehouse Act (Act No. 3893 as amended by Republic Act No. 247) as a result of a loss.
• Renunciation and Abandonment: Luzon Surety argued that Gonzales had renounced and abandoned his rights under the Bonded Warehouse Act by withdrawing his claim from the Bureau of Commerce and executing the amicable settlement.
• Gratuitous Deposit: Luzon Surety argued that the palay delivered to Go Tiong constituted a gratuitous deposit that was extinguished upon the loss and destruction of the subject matter.
• Sale Rather Than Deposit: Luzon Surety argued that the transaction between Go Tiong and Gonzales was more of a sale rather than a deposit.
• Surety Compliance: Luzon Surety argued that the trial court erred in declaring that Luzon Surety Co., Inc. had not complied with its undertaking despite the liquidation of all claims by the Bureau of Commerce.
• Liability Under Bond: Luzon Surety argued that the lower court erred in adjudging the surety liable under the terms of the bond.

• Governing Law and Nature of Deposit: Whether Gonzales's claim is governed by the Bonded Warehouse Act (Act No. 3893, as amended by Republic Act No. 247) or by the Civil Code, given that Go Tiong issued ordinary receipts rather than warehouse receipts and allegedly received the palay as a gratuitous deposit.
• Fortuitous Event and Liability for Fire: Whether Go Tiong is exempt from liability for the loss of the deposited palay because the warehouse fire was a fortuitous event not attributable to his fault.
• Effect of Amicable Settlement on Surety: Whether the amicable settlement between Gonzales and Go Tiong constituted a material alteration of the surety bond, extinguishing and discharging Luzon Surety's liability.
• Failure to Issue Warehouse Receipts: Whether the failure to issue warehouse receipts under the Warehouse Receipts Act precludes recovery on the surety bond.
• Other Assigned Errors: Whether the remaining assigned errors—including the alleged sale rather than deposit, renunciation and abandonment of rights, and the effect of the Bureau of Commerce liquidation—warrant reversal.

• Governing Law and Nature of Deposit: No. The claim is governed by the Bonded Warehouse Act, not the Civil Code; the kind of receipt issued is not decisive, and the deposit was not gratuitous because Go Tiong induced it to promote his business.
• Fortuitous Event and Liability for Fire: No. Go Tiong is not exempt; the presumption of negligence in bailment cases where there is default in delivery or accounting was not rebutted, and his acceptance of palay beyond the licensed limit increased the risk.
• Effect of Amicable Settlement on Surety: No. The amicable settlement did not discharge the surety because it was never consummated; an unconsummated agreement to compromise falling short of an effective settlement will not discharge the surety.
• Failure to Issue Warehouse Receipts: No. The failure to issue the prescribed warehouse receipt does not bar recovery on the bond; the law does not make issuance indispensable, and the surety cannot avoid liability for the warehouseman's breach.
• Other Assigned Errors: Not reached. The Court deemed it unnecessary to discuss and rule upon the other questions raised in the appeal.

• Governing Law and Nature of Deposit: Act No. 3893 as amended is a special law regulating the business of receiving commodities for storage and defining the rights and obligations of a bonded warehouseman and those transacting business with him. Any deposit made with him as a bonded warehouseman must necessarily be governed by Act No. 3893. The kind or nature of the receipts issued is not very material, much less decisive. Although it is desirable that receipts issued by a bonded warehouseman conform to the Warehouse Receipts Law, those provisions are not mandatory and indispensable; under Section 1 of the Warehouse Receipts Act, "Warehouse receipts may be issued by any warehouseman," and the Bonded Warehouse Act permits the warehouseman to issue any receipt, defining "receipt" as any receipt issued by a warehouseman for commodity delivered to him. Go Tiong, as principal obligor, could not use the non-issuance of "quedans" as a defense, especially since he repeatedly promised to issue them and habitually issued ordinary receipts. The deposit was not gratuitous: Go Tiong induced Gonzales to deposit his palay free of charge to promote his business and attract other depositors, with the understanding that Gonzales would convince other palay owners to deposit with him.
• Fortuitous Event and Liability for Fire: The trial court correctly rejected the claim of exemption. While the contract was in the nature of a deposit and loss of the thing would exempt the obligor from returning the goods, the exemption must be conditioned on proof that the loss was by force majeure and without the obligor's fault. The evidence did not clearly establish that legal exemption. The fact that Go Tiong exceeded the authorized deposit limit must have increased the risk and militated against his defense of non-liability. The Court accepted the rule that the facts surrounding the care of the property by a bailee are peculiarly within his knowledge and power to prove, and that the presumption of negligence in bailment cases where there is default in delivery or accounting is not rebutted by simply proving that the property bailed was destroyed by an ordinary fire which broke out on the bailee's own premises, without regard to the care exercised to prevent the fire or to save the property after the fire commenced. Go Tiong also violated the terms of his license by accepting palay in excess of the authorized limit, which increased the risk.
• Effect of Amicable Settlement on Surety: Although there was an attempt to settle the case amicably, the settlement was never consummated because Go Tiong failed to settle Gonzales's accounts to the latter's satisfaction. A compromise or settlement between the creditor or obligee and the principal, by which the latter is discharged from liability, discharges the surety; but an unconsummated agreement to compromise, falling short of an effective settlement, will not discharge the surety. Consequently, the non-consummated compromise settlement did not discharge Luzon Surety.
• Failure to Issue Warehouse Receipts: Section 2 of Act No. 3893 defines "receipt" as any receipt issued by a warehouseman for commodity delivered to him, showing that the law does not require as indispensable that a warehouse receipt be issued. Section 7 of the same law provides that as long as the depositor is injured by a breach of any obligation of the warehouseman, which obligation is secured by a bond, the depositor may sue on the bond. The surety cannot avoid liability from the mere failure of the warehouseman to issue the prescribed receipt. In Andreson vs. Krueger, 212 N.W. 198, 199, it was held that the surety company made itself responsible for the performance by the warehouseman of all duties and obligations imposed upon him by the statute, and that the warehouseman's failure to issue the receipt required by statute is not available to the surety as a defense against an action on the bond; the obligation of the surety covers the duty to issue the prescribed receipt, as well as the other duties imposed by statute.
• Other Assigned Errors: The Court deemed it unnecessary to discuss and rule upon the other questions raised in the appeal.

• Bonded Warehouse Act governs deposits with licensed bonded warehouseman — Any deposit made with a licensed bonded warehouseman is governed by Act No. 3893, as amended by Republic Act No. 247, a special law regulating the business of receiving commodities for storage and defining the rights and obligations of a bonded warehouseman and those transacting business with him. The Court applied this because Go Tiong was a licensed bonded warehouseman who received Gonzales's palay for storage.
• Non-issuance of formal warehouse receipt is not decisive — The Warehouse Receipts Act's provision that "Warehouse receipts may be issued by any warehouseman" is permissive and directory, not mandatory; the Bonded Warehouse Act defines "receipt" as any receipt issued by a warehouseman for commodity delivered to him. Thus, ordinary receipts issued by Go Tiong did not convert the deposit into an ordinary Civil Code deposit or release the surety.
• Deposit induced to promote business is not gratuitous — A deposit is not gratuitous where the warehouseman induced the depositor to store palay free of charge to promote his business and attract other depositors, with the understanding that the depositor would convince other palay owners to deposit with him. The Court used this to reject the argument that the deposit was gratuitous and governed by the Civil Code.
• Bailment presumption of negligence — In bailment cases, where there is default in delivery or accounting, a presumption of negligence arises because the facts surrounding the care of the property are peculiarly within the bailee's knowledge and power to prove. The bailee must prove that the loss was by force majeure and without fault; merely proving that the property was destroyed by an ordinary fire on the bailee's premises does not rebut the presumption. The Court applied this because Go Tiong failed to prove a clear legal exemption and had exceeded his licensed storage limit, increasing the risk.
• Unconsummated compromise does not discharge surety — A compromise or settlement between the creditor and the principal that discharges the principal also discharges the surety, but an unconsummated agreement to compromise, falling short of an effective settlement, will not discharge the surety. The Court applied this because the amicable settlement between Gonzales and Go Tiong was never consummated due to Go Tiong's failure to settle the accounts.
• Surety's liability for warehouseman's statutory duties — A surety on a bonded warehouseman's bond is responsible for the warehouseman's faithful performance of all duties and obligations imposed by the statute, including the duty to issue the prescribed receipt. The surety cannot avoid liability on the bond merely because the warehouseman failed to issue the prescribed receipt. The Court applied this to hold Luzon Surety liable under the bond.

• "Act No. 3893 as amended is a special law regulating the business of receiving commodities for storage and defining the rights and obligations of a bonded warehouseman and those transacting business with him. Consequently, any deposit made with him as a bonded warehouseman must necessarily be governed by the provisions of Act No. 3893." — This states the ratio decidendi on the governing law, establishing that the Bonded Warehouse Act, not the Civil Code, controls deposits with a licensed bonded warehouseman.
• "The kind or nature of the receipts issued by him for the deposits is not very material much less decisive." — This defines the Court's treatment of the ordinary receipts, holding that the absence of formal warehouse receipts did not remove the deposit from the coverage of the Bonded Warehouse Act.
• "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 by an 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." — This articulates the bailment rule applied to reject Go Tiong's force majeure defense and to hold him liable for the loss of the deposited palay.
• "But an unconsummated . . . agreement to compromise, falling short of an effective settlement, will not discharge the surety." — This is the controlling formulation on the surety's liability, applied because the amicable settlement between Gonzales and Go Tiong was never consummated.

• La Sociedad Dalisay vs. De los Reyes, 55 Phil. 452 — Cited by appellants for the proposition that a warehouseman is not liable for fire neither intentional nor due to negligence. The Court did not follow it because the evidence did not clearly prove force majeure without fault, and Go Tiong's excess deposits increased the risk.
• La Sociedad vs. De Los Santos, 55 Phil. 42 — Mentioned in the trial court's quoted ruling as a case not followed on the same defense of non-liability for fire. The Supreme Court affirmed the trial court's disposition of the contention.
• Andreson vs. Krueger, 212 N.W. 198, 199 — Cited for the rule that a surety on a warehouseman's bond is responsible for the warehouseman's performance of all statutory duties, and that the warehouseman's failure to issue the required receipt is not available to the surety as a defense against an action on the bond.
• Hanes vs. Shapiro, 84 S.E. 33; J. Russel Mfg. Co. vs. New Haven, S.B. Co., 50 N.Y. 211; Beck vs. Wilkins-Ricks Co., 102 S.E. 313; Fleishman vs. Southern R. Co., 56 S.E. 974 — Cited in support of the bailment rule that a presumption of negligence arises where there is default in delivery or accounting, and that the bailee must prove care.

• Section 1, Warehouse Receipts Act (Act No. 2137) — Provides that "Warehouse receipts may be issued by any warehouseman." The Court cited this to hold that issuance of a warehouse receipt in the prescribed form is permissive and directory, not obligatory.
• Section 2, Bonded Warehouse Act (Act No. 3893, as amended) — Defines "receipt" as any receipt issued by a warehouseman for commodity delivered to him. The Court used this to hold that a formal warehouse receipt is not indispensable and that ordinary receipts did not remove the deposit from the special law.
• Section 7, Bonded Warehouse Act (Act No. 3893, as amended) — Provides that as long as the depositor is injured by a breach of any obligation of the warehouseman secured by a bond, the depositor may sue on the bond. The Court used this to hold that the surety cannot avoid liability from the mere failure of the warehouseman to issue the prescribed receipt.
• Section 17(6), Republic Act No. 296 — The Court of Appeals indorsed the case to the Supreme Court under this provision because the issues raised were purely questions of law.
• New Civil Code — Invoked by Go Tiong as the basis for exemption from liability for the loss of the palay. The Court rejected the exemption because the evidence did not clearly prove that the loss was by force majeure and without fault.
• Act No. 3893, as amended by Republic Act No. 247 (General Bonded Warehouse Act) — The special law governing the business of receiving commodities for storage and defining the rights and obligations of a bonded warehouseman and those transacting business with him. The Court held that any deposit made with a licensed bonded warehouseman is governed by this law.

Paras, C.J., Padilla, Reyes, A., Bautista Angelo, Concepcion, Endencia, Reyes, J.B.L., and Felix, JJ., concur. Bengzon, J., concurs in the result.