G.R. No. 34655 ; March 5, 1932
SIY CONG BIENG & CO., INC., plaintiff-appellee, vs. HONGKONG & SHANGHAI BANKING CORPORATION, defendant-appellant.

FACTS

Plaintiff Siy Cong Bieng & Co., Inc. delivered negotiable warehouse receipts (quedans) for 464 bales of hemp to Otto Ranft, with the understanding that payment would be made against the receipts. Instead of paying, Ranft pledged the receipts to defendant Hongkong & Shanghai Banking Corporation to secure his preexisting debt. The receipts were endorsed in blank by the plaintiff and Ranft. Ranft died the same day. Plaintiff demanded the return of the receipts or payment from the bank, which refused, claiming to be a holder in due course. Plaintiff sued to recover the value of the hemp.

ISSUE

Whether the defendant bank is a holder in due course of the negotiable warehouse receipts, entitled to retain them as security for Ranft’s debt, despite the plaintiff’s non-receipt of payment from Ranft.

RULING

Yes. The Supreme Court reversed the lower court’s judgment and absolved the defendant bank. The negotiable warehouse receipts were duly endorsed in blank and delivered to the bank as a pledge for a preexisting debt. The bank had no duty to investigate Ranft’s authority to negotiate the receipts, as they bore all indicia of ownership. The plaintiff, by endorsing the receipts in blank and delivering them to Ranft, clothed him with the apparent ownership, and thus is estopped from denying the bank’s valid title. The loss must fall on the party whose misplaced confidence made the wrong possible.

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