Philippine National Bank vs. Producers' Warehouse Association

A corporation that appoints another corporation as its general manager with authority to issue warehouse receipts in its name is bound by those receipts; and having denied their validity and the existence of the stored goods, it is estopped from requiring the holder to tender charges or register the transfer as conditions precedent to recovery.

The Philippine National Bank was a corporation organized under the banking laws of the Philippine Islands with its principal office in Manila. The Producers' Warehouse Association was a domestic corporation doing a general warehouse business in Manila, while the Philippine Fiber and Produce Company was another domestic corporation also based in Manila. In May 1916, the warehouse association appointed the Produce Company as general manager of its business under a written ten-year contract that gave the Produce Company general and complete supervision and management, including the power to sign the association's name, subject to the board's control, at an annual salary of P7,500 plus P300 per month for local agents.

In May 1916, the Producers' Warehouse Association, a domestic corporation doing a general warehouse business in Manila, entered into a written contract with the Philippine Fiber and Produce Company, another domestic corporation, appointing the latter as general manager of the former's business in all branches. The contract gave the Produce Company general and complete supervision over and management of the business, with all powers necessary, proper, or usual, including the power to sign the association's name, subject only to the control and instructions of the association's board of directors; reservations by the board were not to unreasonably hamper or interfere with due management or reduce the general manager's powers below the usual and ordinary standard in business of like kind. The Produce Company was to receive an annual salary of P7,500, and the association was also to pay the Produce Company's local agents P300 per month. The agreement was to remain in force for ten years from date, with the Produce Company having the right to renew it for a further period of one to ten years at its option.

In November and December 1918, while the contract was in force, the association issued to the Produce Company seven negotiable quedans, Nos. 1255, 1266, 1273, 1275, 1277, 1279, and 1283, covering 15,699.34 piculs of copra. Each quedan was on the association's printed form, marked "Negotiable Warrant" in red ink, and signed by George B. Wicks as treasurer and R. Torres as warehouseman. Each stated the number of sacks, piculs, warehouse number, gross weight in kilos, and declared value, and recited that the copra was insured for the full amount of its declared value. Storage charges were at P0.04 per picul per month, and insurance was at one-third of one per cent per month on the declared value. Section 4 of the printed conditions provided that the association would deliver the packages on surrender of the warrant endorsed by the party registered as owner, and that production of the warrant would be conclusive proof that the packages had been properly delivered and would exempt the association from responsibility. Section 5 provided that no transfer of interest or ownership would be recognized unless registered in the association's books and all storage and insurance charges paid, and that such charges would constitute a lien against the packages until paid, with the packages remaining undelivered until the lien was satisfied.

The Produce Company arranged for an overdraft with the Philippine National Bank of P1,000,000. To secure the overdraft, from and after the dates of their issuance, the quedans were endorsed in blank by the Produce Company and delivered to the bank, which became and remained the owner and holder. Without making a tender of any charges, on March 21, 1919, the bank requested delivery of the copra described in the quedans. The association failed to deliver, and on April 23, 1919, the bank commenced this action to recover the copra's alleged value of P240,689, with interest from March 21, 1919 at 6 per cent per annum.

On July 10, 1919, the bank filed an amended complaint, and on August 9, 1919, a second amended complaint. In the second amended complaint, the bank alleged that it had purchased the quedans in good faith and was the owner; it recited the conditions printed on the back; and it alleged that on July 30, 1919, it requested the association to register the quedans in the bank's name and deliver 14,587.19 piculs of copra, offering to satisfy any lien the association might have, to surrender the receipts with any indorsement required, and to sign receipts for the copra when delivered. The association refused, stating that the goods were not in the warehouse. The bank further alleged that on July 30, 1919, copra was valued at P21 per picul, and that by reason of the refusal it had been damaged in the amount of P306,330.99. It also alleged that in January 1919, with the bank's consent, the Produce Company had removed 1,112.15 piculs of copra described in receipt No. 1255, with a declared value of P18,350.

In its amended answer, the association admitted that the Produce Company had deposited copra in its warehouse and that warehouse receipts were issued to the Produce Company signed by Wicks and Torres, but denied that either had authority to issue the receipts in the association's name, denied that the receipts were complete and correct copies, and set up further defenses. It alleged that at the time alleged the Produce Company was the manager of the association's warehouse; that all copra deposited by the Produce Company in the warehouse was, with the consent and knowledge of the bank, sold and delivered to the Laguna Cocoanut Oil Company, with the proceeds deposited to the Produce Company's account with the bank before the second amended complaint was filed; that the delivery was made by the Produce Company as manager without surrender of the receipts; that the receipts were issued without the association's authority; that they were never transferred to the bank on the association's books as required; and that they were issued without the copra described therein being deposited in the association's warehouse.

During trial, the bank offered the quedans as Exhibits C to I. The association admitted that the signature on the lower left-hand corner of each exhibit was that of George B. Wicks, who at the time was the duly elected, qualified, and appointed treasurer of the association, and that the signature on the lower right-hand corner was that of R. Torres, who was then a warehouseman of the association and in the employ of the Produce Company. On March 21, 1919, the bank notified the association that the Produce Company had endorsed the quedans to the bank and asked when it could take possession of the goods. The association's secretary and attorney replied in a letter marked Exhibit B, which the trial court refused to receive in evidence. The record showed that in response to that letter, the secretary and attorney went to the bank, and the only matter discussed was the amount the association should pay the bank for the copra it could not deliver; nothing was said about any lien, the surrender of the quedans, or the signing of receipts for the copra upon delivery. On July 30, 1919, after the court sustained a demurrer to the complaint, the bank's attorney went directly to the association and offered to pay any lien or charges, offered all the quedans indorsed in blank by the Produce Company, offered to place on them any indorsement that would make them negotiable, and offered to sign for the bank the receipts for the copra when delivered. Wicks, then acting for the association, refused to take up the quedans, stating that the copra they represented was not in the warehouse and that "we cannot give you the copra because it is not there." The bank's attorney had the quedans with him and exhibited them to Wicks. On July 29, 1919, in answer to the association's letter of July 28, the Produce Company wrote that it could not return the warrant because in December 1918 it had deposited the warrants with the bank as security for loans and the bank refused to return them; that all the copra, less shrinkage and other losses, had been delivered by the association; and it authorized the association to cancel the warrants and agreed to hold it free and harmless for doing so.

The bank's attorney testified that the overdraft agreement was for one million pesos and that the Produce Company signed one of the bank's printed forms. When the bank rested, the association moved for judgment against the bank for want of sufficient evidence; the motion was denied and an exception taken. The association then called J. McLaughlin, a public accountant who had audited the Produce Company's books for the six months ending December 31, 1918. His report, made from those books, showed that on December 31, 1918, the Produce Company owed the bank P887,856.66. George E. Kauffman testified that he was president of both the association and the Produce Company and held that position in October 1916 when the contract was made; that the contract was voluntarily surrendered and cancelled in April 1919 and had been duly ratified by the directors of both corporations; and that after ratification the Produce Company assumed active management of the association's business under the contract. He also testified that Mr. Lacson presented quedans for a certain amount of copra to Wicks and asked for delivery, and Wicks told Lacson that the copra did not exist because it had been delivered by the Produce Company. Kauffman further testified that he owned 98 per cent of the Produce Company's capital stock and that Wicks had only one share. Wicks testified that he was vice-president of the Produce Company from October 1916 until February 1919 and treasurer from July 1, 1917, up until that year; that R. Torres was actually in charge of the warehouse and the Produce Company was managing the warehouse; that the Produce Company was selling copra between December 1, 1918, and February 1, 1919, and depositing the proceeds in the bank; that during that period the warehouse receipts were hypothecated with the bank; and that under the practice at the end of each week the warehouse would notify him of the amount of copra delivered, and he would withdraw from the bank the corresponding number of warrants for cancellation, sometimes personally and sometimes by sending the cashier with a note asking the bank to release the warrants for cancellation. The receipts were delivered to him regularly until about the end of January or early February, and the procedure was a matter of convenience to both parties. Wicks also testified that the reason he gave the bank for not delivering the copra was that the copra was not in the warehouse, having been delivered to its owners; that while he was treasurer of the association all the quedans issued by the warehouse were signed by him as treasurer, and so far as he knew they had also been signed by Kauffman; and that Kauffman was absent from about March 15, 1918, until May 1919, during which period Wicks had full authority to act for the Produce Company, and that authority was never questioned by anyone.

The Supreme Court found the testimony conclusive that the quedans were duly executed by Wicks as treasurer and Torres as warehouseman for and on behalf of the association and as its act and deed; that the Produce Company was indebted to the bank in the sum of P887,856.66 as of December 31, 1918; that after the quedans were issued they were endorsed in blank and physically delivered to the bank as collateral security for the Produce Company's overdraft; and that each was in form negotiable. It further found that on March 21, 1919, the bank notified the association of those facts and requested delivery of the copra; that at that time no claim was made on account of conditions, liens, or charges, and the bank did not offer to pay charges or comply with the conditions, the only question discussed being the amount of copra to which the bank was entitled; and that in July 1919, after the demurrer to the complaint was sustained, the bank for the first time made a formal tender of all such conditions and then filed its second amended complaint alleging the tenders. The lower court had rendered judgment for the defendant, and the bank appealed.

• Error in Denying Full Recovery: Plaintiff-appellant claimed that the lower court erred in not giving it judgment for the full amount prayed for in its complaint.
• Ownership and Good Faith: Plaintiff alleged that it purchased the quedans in good faith, became their owner and holder, and was entitled to delivery of the copra or its value.
• Tender and Conditions: Plaintiff alleged that on July 30, 1919, it requested registration and delivery, offered to satisfy any lien, to surrender the receipts with any required indorsement, and to sign receipts for the copra when delivered.
• Estoppel and Waiver: The bank maintained that the defendant's denial of the quedans' validity and of the copra's existence excused compliance with conditions precedent, including tender of charges and transfer on the books.

• Lack of Authority: Defendant denied that Wicks and Torres had any authority to issue the receipts in the defendant's name.
• Non-Existence and Prior Delivery: Defendant alleged that the copra had been sold and delivered to the Laguna Cocoanut Oil Company with the plaintiff's consent, that the proceeds were deposited to the Produce Company's account with the plaintiff, and that the receipts were issued without the copra being deposited in the defendant's warehouse.
• Non-Transfer and Non-Surrender: Defendant alleged that the receipts were never transferred to the plaintiff on its books as required, and that delivery was made without surrender of the receipts.
• Invalidity of Receipts: Defendant alleged that the receipts were invalid and wrongfully issued.

• Authority to Issue Quedans: Whether the Produce Company, as general manager of the defendant's warehouse business, had authority to issue the quedans in the defendant's name.
• Estoppel and Conditions Precedent: Whether the defendant, having denied the validity of the quedans and the existence of the copra, is estopped from asserting that the plaintiff failed to comply with conditions precedent, including tender of charges and surrender of the quedans.
• Tender and Transfer on Books: Whether the plaintiff's failure to make a formal tender and to have the quedans transferred on the defendant's books bars recovery.
• Good Faith and Fraud: Whether the plaintiff acquired the quedans in good faith and without knowledge of any fraud.
• Value of Copra: Whether the declared value in the quedans may be deemed the market value of the copra in the absence of direct proof.

• Authority to Issue Quedans: Yes. The written management contract made the Produce Company general manager with authority to issue quedans in the defendant's name as its corporate act and deed.
• Estoppel and Conditions Precedent: No. The defendant's denial of the quedans' validity and of the copra's existence estopped it from claiming non-compliance with conditions precedent.
• Tender and Transfer on Books: No. Tender was waived and transfer on the books was excused because the defendant repudiated the instruments and refused transfer and delivery.
• Good Faith and Fraud: Yes. The bank acted in good faith; there was no allegation or proof that it was a party to or knew of any fraud.
• Value of Copra: Yes. Absent other proof, the declared value in the quedans is deemed the market value; after deducting 1,112.15 piculs, the amount is P240,689.

• Authority to Issue Quedans: The ruling rested on the May 1916 written contract, which gave the Produce Company general and complete supervision and management of the defendant's business, the power to sign the defendant's name, and all powers necessary, proper, or usual, subject only to board control that could not unreasonably hamper management. The Court found the "stubborn fact" that the Produce Company was the general manager of the defendant's warehouse business and had authority to issue quedans in its name as its corporate act and deed. The quedans were duly authenticated and issued by the defendant to the Produce Company, and the defendant admitted the signatures of Wicks as treasurer and Torres as warehouseman. The defendant was therefore bound by the receipts.

• Estoppel and Conditions Precedent: The defendant alleged that the quedans were invalid and wrongfully issued and that the copra described therein was not in its warehouse. The Court held that a person has no legal right to deny the existence of the instruments on which the action is based and then claim that the plaintiff did not comply with the provisions of those instruments. It quoted Wyatt vs. Henderson, where the court held that by denying the plaintiff's ownership, the defendant waived the statutory lien, making the amount due for storage immaterial. Anderson vs. Portland Flouring-Mills Co. followed and approved that ruling. The Court also cited Cyc. and Ruling Case Law for the principle that tender is waived where the tenderee repudiates the contract or takes a position that would render tender a vain and idle ceremony. Because the defendant repudiated the instruments and denied that the copra existed, it could not insist on conditions precedent.

• Tender and Transfer on Books: On March 21, 1919, no claim was made on account of conditions, liens, or charges; the only question discussed was the amount of copra to which the plaintiff was entitled. In July 1919, after the demurrer to the complaint was sustained, the bank for the first time made a formal tender of all conditions and then filed its second amended complaint alleging the tenders. The defendant then denied the authenticity of the quedans and claimed they were wrongfully and illegally issued. The Court held that if the copra evidenced by the quedans was in the bodegas, the defendant's contention would be tenable, but upon the facts shown the defendant had no legal right to make that defense. As to the failure to transfer the quedans on the books, the plaintiff produced them and requested transfer, which the defendant refused; the defendant was not in a position to urge that point as a defense. Tender was not required where it would be vain or useless, and where a contract calls for concomitant acts, neither party is obliged to perform unless the other is ready to perform the correlative act.

• Good Faith and Fraud: For aught that appeared in the record, the bank was acting in good faith, and the quedans were duly issued, endorsed, and delivered to it as collateral in the ordinary course of business. Although there may have been fraud, there was no allegation or proof that the bank was a party to it or had any knowledge of it, and the Court had no right to assume that the bank was a party to a fraud. Giving the quedans their legal force and effect, the bank was the owner and entitled to possession of the copra at the time the demand was made.

• Value of Copra: As in Philippine Trust Company vs. Philippine National Bank, there was no direct evidence of the market value of the copra. Each quedan, however, specified its declared value. In the absence of other proof, and upon the facts shown, the declared value was deemed and treated as the market value. The receipts called for 15,699.34 piculs of copra, but the plaintiff admitted that, with its consent, 1,112.15 piculs of copra of the declared value of P18,350 were delivered to the Produce Company out of receipt No. 1255. This left 14,587.19 piculs of copra evidenced by the quedans, with a declared value of P240,689. Judgment was therefore entered for that amount, with interest from March 21, 1919 at 6 per cent per annum, and costs.

• Warehouse Receipts (Quedans) as Negotiable Instruments — A warehouse receipt in negotiable form, issued by a warehouseman through authorized officers, may be endorsed and delivered as collateral; the holder may demand the goods or their value. The Court treated the quedans as in form negotiable and gave them legal force, holding the bank was the owner and entitled to possession.

• Authority of a Corporate General Manager — A corporation that appoints another corporation as general manager with general and complete supervision, management, and power to sign the corporation's name may be bound by warehouse receipts issued by that manager in its name as its corporate act. The Court found the Produce Company had such authority under the May 1916 contract.

• Estoppel Against Denying an Instrument's Validity — A party who denies the existence or validity of the instruments on which the action is based cannot simultaneously assert that the plaintiff failed to comply with conditions precedent in those instruments. The Court applied this to bar the defendant's tender and transfer defenses.

• Waiver of Tender — A formal tender is not required where it would be vain or useless, as where the tenderee repudiates the contract or states that performance will not be accepted. The Court held the bank's initial failure to tender charges was excused by the defendant's refusal and denial.

• Concomitant Acts and Tender — Where a contract calls for performance by both parties and neither is obliged to perform unless the other is ready, tender is not necessary by one if the other is not willing to perform its part. The Court cited this principle in excusing tender.

• Declared Value as Market Value — In the absence of direct evidence of market value, the declared value stated in a warehouse receipt may be deemed and treated as the market value of the goods. The Court applied this to compute the award.

• Good Faith and Fraud — Fraud is not presumed; a holder of negotiable warehouse receipts is not to be assumed a party to fraud absent allegation or proof. The Court found the bank acted in good faith.

• "The defendant, having alleged that the quedans were invalid and wrongfully issued, and that the copra therein described was not in defendant's warehouse, is now estopped do claim or assert that the plaintiff did not comply with any conditions precedent. In this kind of an action, a person has no legal right to deny the existence of the instruments on which it is based, and then claim that plaintiff has not complied with the provisions of the instruments." — This passage states the ratio decidendi on estoppel: the defendant cannot deny the quedans' validity and the copra's existence while insisting on conditions contained in those same instruments.

• "The stubborn fact remains that, under the written contract between them, the Produce Company was the general manager of the defendant's warehouse business, and that it had authority to issue quedans in its name, and as its corporate act and deed." — This is the Court's core finding on authority, grounding the defendant's liability in the May 1916 management contract.

• "Since the law does not require any one to do vain or useless things, a formal tender is never required where it appears that if it had been made, the money would not have been received, as where a creditor states that an actual tender will be useless because he will not accept it, or where one party to a contract states that he will not comply with its terms." — This passage, quoted from Ruling Case Law, supplies the canonical formulation of the tender-waiver doctrine applied to excuse the bank's failure to tender charges.

• "As in the case of the Philippine Trust Company vs. Philippine National Bank, recently decided, there is no direct evidence of the market value of the copra. But each quedan specified the amount of its declared value. That being specified in the quedans, in the absence of other proof, and upon the fact shown, the declared value will be deemed and treated as the market value." — This passage establishes the rule on damages: the declared value in the quedans substitutes for direct proof of market value.

• Wyatt vs. Henderson, 31 Ore., 48; 48 Pac., 790 — Quoted by the Court for the rule that a defendant who denies the plaintiff's ownership waives a statutory lien, making the amount due for storage immaterial. This supported the estoppel and waiver holding.

• Anderson vs. Portland Flouring-Mills Co., 60 Pac., 839 — Cited as following and approving Wyatt vs. Henderson, reinforcing the waiver principle applied against the defendant.

• Philippine Trust Company vs. Philippine National Bank, page 413, ante — Cited for the rule that in the absence of direct evidence of market value, the declared value in quedans is deemed the market value. The Court applied it to compute the award.

• Section 4, Conditions Printed on the Back of the Quedans — Provided that the association would deliver the packages on surrender of the warrant endorsed by the registered owner, and that production of the warrant would be conclusive proof of proper delivery and exempt the association from responsibility. The Court held the defendant could not invoke this after denying the quedans' validity and the copra's existence.

• Section 5, Conditions Printed on the Back of the Quedans — Provided that no transfer of interest or ownership would be recognized unless registered in the association's books and all storage and insurance charges paid, and that such charges constituted a lien until paid, with the packages remaining undelivered until the lien was satisfied. The Court held the non-transfer and tender defenses unavailable because the defendant refused transfer and denied the copra existed.

• May 1916 Management Contract — Appointed the Produce Company as general manager of the defendant's business, with general and complete supervision and management, power to sign the defendant's name, subject to board control, and a ten-year term. The Court relied on this contract to hold that the Produce Company had authority to issue the quedans in the defendant's name.

Araullo, C.J., Johnson, Street, Malcolm, Avanceña, Villamor, and Romualdez, JJ.