G.R. No. L-16977; April 21, 1922
FRANK B. INGERSOLL, as assignee of the insolvent estate of Dy Poco, plaintiff-appellant, vs. THE PHILIPPINE NATIONAL BANK, defendant-appellant. THE PHILIPPINE GUARANTY COMPANY, INC., intervenor and appellee.

FACTS

Dy Poco, a merchant, owed the Philippine National Bank (PNB) about P58,000. Prior to June 4, 1919, PNB secured his signature on a blank promissory note and a blank pledge form covering his stock of goods. These documents were undated and contained no property description. PNB later dated the note June 4, 1919, attached an inventory of all Dy Poco’s merchandise from his warehouse, and seized the property based on the pledge. On June 7, 1919, Dy Poco was declared insolvent, and Frank B. Ingersoll was appointed assignee. Ingersoll demanded the property from PNB and, upon refusal, sued for its value. PNB defended by asserting its right under the pledge to sell the property, realizing P37,382.46. The Philippine Guaranty Company (Guaranty Co.) intervened, claiming a preferred right to the proceeds from the sale of 1,000 boxes of sardines (valued at P4,338.60). The Guaranty Co. had issued bonds to the customs authorities to allow Dy Poco to take the sardines without presenting the bill of lading or paying duties. Since the documents were never presented, the Guaranty Co. became liable to the government and claimed subrogation to the government’s rights over the sardines. The trial court ruled for Ingersoll against PNB for P37,382.46, ordering that P4,338.60 be paid to the Guaranty Co. as a preferred claim. All parties appealed.

ISSUE

1. Whether the pledge agreement between Dy Poco and PNB was valid and enforceable against the insolvent estate.
2. Whether the Philippine Guaranty Company has a preferred claim to the proceeds from the sale of the sardines.

RULING

1. The pledge agreement was not valid and enforceable against the insolvent estate. The Supreme Court found that PNB knew or should have known Dy Poco was insolvent on June 4, 1919. The transaction involved a pledge of all his stock to secure a pre-existing debt, which constituted constructive fraud under the insolvency law. Therefore, PNB had no right to the property as a pledgee, and the assignee was entitled to recover the proceeds from the sale (P37,382.46).
2. The Supreme Court initially denied the Guaranty Co.’s claim for preference, but upon motion for rehearing, reconsidered. The Court held that if the Guaranty Co.’s claim is based on the insolvent estate’s ownership of the sardines, it is not preferred. However, if the Guaranty Co. asserts that title to the sardines never passed to the insolvent estate (e.g., remained with the Overseas Trading Company), a different question is presented. The case was remanded to the trial court to allow the Guaranty Co. to amend its pleadings and litigate the specific issue of ownership of the sardines at the relevant time.