G.R. No.
L-10195 December 29, 1916 the sum of P450, with interest thereon at the rage of 6 per
YU CON, plaintiff-appellee, vs. GLICERIO IPIL, NARCISO
LAURON, and JUSTO SOLAMO, defendants-appellants.
ARAULLO, J.:
The purpose of the action brought in these proceedings is
to enable the plaintiff to recover from the defendants jointly
and severally the sum of P450, which had been delivered
by the plaintiff to the first and third of the above-named
defendants, master and supercargo, respectively, of a
banca named Maria belonging to the second defendant, to
be carried, together with various merchandise belonging to
the plaintiff, from the port of Cebu to the town of Catmon of
the Province of Cebu. By virtue of the contract executed
between the said second defendant and the plaintiff, the
money and merchandise were to be transported by the said
craft between the points above-named in consideration of
the payment of a certain sum for each voyage. The money
disappeared from said craft during the night of October 18,
1911, while it was anchored in the port of Cebu and ready
to sail for its destination, Catmon, and was not afterwards
found. The plaintiff based his action on the charge that the
disappearance of said sum was due to the abandonment,
negligence, or voluntary breach, on the part of the
defendants, of the duty they had in respect to the safe-
keeping of the aforementioned sum.
The defendants, besides denying the allegations of the
complaint, pleaded in special defense that the plaintiff, at
his own expense and under his exclusive responsibility,
chartered the said banca, the property of the defendant
Lauron, for the fixed period of three days, at the price of
P10 per diem, and that, through the misfortune, negligence,
or abandonment of the plaintiff himself, the loss complained
of occurred, while said banca was at anchor in the port of
Cebu, and was caused by theft committed by unknown
thieves. They further alleged that said defendant Lauron,
the owner of the banca merely placed this craft at the
disposal of the plaintiff for the price and period agreed
upon, and did not go with the banca on its voyage from
Catmon to Cebu. As a counterclaim, the defendants also
asked that the plaintiff be ordered to pay the freight agreed
upon, which had not yet been paid, amounting to P80, plus
the sum of P70, as an indemnity for the losses and
damages caused them by the attachment of the banca,
issued at the instance of the plaintiff upon filing his
complaint. They also prayed for the additional sum of P100,
for the deterioration of the said banca, and also that of
P200 for other deterioration suffered by the same since
November, 1911, and which had not bee paid for. Finally,
the defendants asked to be absolved from the complaint.
Before commencing the hearing of this case, the
defendants made a verbal motion asking that the plaintiff be
declared in default, with respect to the counterclaim filed by
them in their answer. On the same date, the plaintiff
presented his answer to said counter claim, denying each
and all of the allegations thereof and of the defendants'
special defense. The aforementioned motion was overruled
by the court, and the defendants excepted.
At the termination of the trial, the court, in view of the
evidence adduced, held that there was no room to doubt
that the sole cause of the disappearance of the money from
the said banca was the negligence of the master and the
supercargo, the defendants Ipil and Solamo, respectively,
and that the defendant Narciso Lauron was responsible for
that negligence, as owner of the banca, pursuant to articles
589, 587, and 618 of the Code of Commerce, the plaintiff
therefore being entitled to recover the amount lost.
Judgment was rendered on April 20, 1914, in favor of the
plaintiff and against the defendants jointly and severally for
cent per annum from the date of filing of the complaint,
October 24, 1911, with costs. The plaintiff was absolved
from the defendant's counterclaim. From this judgment the
defendants excepted and at the same time moved for a
new trial. Their motion was denied, to which ruling they also
excepted, and, through the proper bill of exceptions,
entered and appeal to this Supreme Court. In their brief
they allege that the trial court erred:
1. In applying articles 586, 587, and 618 of the Code of
Commerce in favor of the plaintiff;
2. In overruling the motion for default presented by the
defendants and in sentencing the defendants jointly and
severally to pay the plaintiff the amount mentioned in the
judgment; and
3. In absolving the plaintiff from the defendant's
counterclaim.
The evidence shows that the plaintiff Yu Con, a merchant
and a resident of the town of San Nicolas, of the city of
Cebu, engaged in the sale of cloth and domestic articles
and having a share in a shop, or small store, situated in the
town of Catmon, of said province, had several times
chartered from the defendant Narciso Lauron, a banca
named Maria belonging to the latter, of which Glicerio Ipil
was master and Justo Solamo, supercargo, for the
transportation of certain merchandise and some money to
and from the said town and the port of Cebu, that, on or
about the 17th of October, 1911, the plaintiff chartered the
said banca from the defendant Lauron for the transportation
of various merchandise from the port of Cebu to Catmon, at
the price of P45 for the round trip, which merchandise was
loaded on board the said craft which was then at anchor in
front of one of the graded fills of the wharf of said port; that
in the afternoon of the following day, he delivered to the
other two defendants, Ipil, and Solamo, master and
supercargo, respectively, of the afore-named banca, the
sum of P450, which was in a trunk belonging to the plaintiff
and was taken charge of by said two defendants, who
received this money from the plaintiff, for the purpose of its
delivery to the latter's shop in Catmon for the purchase of
corn in this town; that while the money was still in said truck
abroad the vessel, on the night of the said 18th of October,
the time scheduled for the departure of the Maria from the
port of Cebu, said master and said supercargo transferred
the P450 from the plaintiff's trunk, where it was, to theirs,
which was in a stateroom of the banca, from which
stateroom both the trunk and the money disappeared
during that same night, and that the investigations, made to
ascertain their whereabouts, produced no result.
The facts are also admitted by the aforementioned master
and supercargo, two of the defendants, that they received
from the plaintiff said P450, which sum was in the latter's
own trunk which was placed outside the stateroom of the
banca, for the reason, as they said, that there was no room
for it inside the stateroom; that these defendants therefore
transferred said money to their trunk, which was inside the
stateroom, and that this trunk and the P450 therein
contained disappeared from the boat during the night of that
same day; that said sum had not been found or returned to
the plaintiff; that the plaintiff, being on the banca in the
afternoon of that day, when his trunk containing the P450
was carried aboard, and seeing that said two defendants,
who had the key of the trunk, has removed said sum to their
trunk inside the stateroom, charged them to take special
care of the money; that the master Ipil assured the plaintiff
that there was no danger of the money being lost; and that,
final, during the night in question, both the master and the
supercargo and four cabin-boys were aboard the banca.
It was likewise proven by the affidavits made by the master
Ipil, the supercargo Solamo, and the cabin-boys of said
vessel, Juan Quiamco and Gabriel Basang, before the
provincial fiscal of Cebu on the day following the
commission of the theft, which affidavits were presented at
the trial as Exhibits A, 3, 4, and 5, and by the testimony
given at the trial by the defendants Ipil and Solamo, that
both said cabin-boys and the other two, Simeon Solamo,
and said cabin-boys ad the other two, Simeon Solamo, and
Eulalio Quiamco, knew of the existence of the money in the
trunk inside the stateroom and witnessed its removal to said
trunk from the plaintiff's; that the last two cabin- boys
above-named, in company with the master and the
supercargo, conveyed the plaintiff's trunk, in which the
money was previously contained, from the plaintiff's shop to
the banca; and that no person not belonging to the vessel
knew that the money was in the trunk inside said stateroom.
According to the testimony of the master Ipil himself he
slept outside the stateroom that night, but a cabin-boy
named Gabriel slept inside. The latter, however, was not
presented by the defendants to be examined in regard to
this point, nor does it appear that he testified in respect
thereto in his affidavit, Exhibit 5, before referred to,
presented by the defendant's own counsel. The master Ipil
and the supercargo Solamo also testified that they left the
cabin-boy Simeon Solamo on guard that night; but this
affirmation was not corroborated by Solamo at the trial, for
he was not introduced as a witness, and only his affidavit,
Exhibit 2, taken before the fiscal of Cebu on the day
following the commission of the crime, was presented by
the defendants. This affidavit, which should have been
admitted and not rejected, as was done by the court and
excepted to by the defendants, shows that Simeon Solamo
stated that he was not designated to do guard duty that
night, but that on the morning of the said 19th of October,
that is, the next day, all agreed that affiant should say that
he was on guard, though it was not true that he was.
Finally, said two defendants, the master and the
supercargo, gave no satisfactory explanation in regard to
the disappearance of the trunk and the money therein
contained, from the stateroom in which the trunk was, nor
as to who stole or might have stolen it. The master of the
banca merely testified that they, he and the supercargo, did
to know who the robbers were, for, when the robbery was
committed, they were sound asleep, as they were tired, and
that he believed that the guard Simeon also fell asleep
because he, too, was tired. The second defendant gave the
same testimony. Both of them testified that the small
window of the stateroom had been broken, and the first of
them, i.e., the master, stated that all the window-blinds had
been removed from the windows, as well as part of the
partition in which they were, and that the trunk in which the
money was contained could have been passed through
said small window, because, as this witness himself had
verified, the Chinaman's trunk, which differed but a little
from the one stolen, could be passed through the same
opening. The chief pilot of the harbor of Cebu, Placido
Sepeda, who officially visited the said banca, also stated
that the small wooden window of the stateroom was broken,
and that he believed that in breaking it much noise must
have been produced. However, no evidence whatever was
offered by counsel for the defendants to prove that it might
have been possible to remove the trunk from the stateroom
through the opening made by the breaking of the small
window, neither was the size of the trunk proven, in relation
to the Chinaman's to which the defendant master referred in
his testimony, so that it might be verified whether the
statement made by the latter was true, viz., that it might
have been possible to remove from the stateroom through
said opening the trunk in which the P450 were contained,
which sum, the same as the trunk, its container, had not
been found, in spite of the investigation made for the
purpose. Furthermore, it was not proven, nor is there any
circumstantial evidence to show, that the robbery in
question was committed by persons not belonging to the
craft.
It is therefore beyond all doubt that the loss or
disappearance, on the night aforementioned, of the P450,
the property of the plaintiff, which, were in the possession of
the defendants, the master and the supercargo of the
banca Maria, occurred through the manifest fault and
negligence of said defendants, for, not only did they fail to
take the necessary precautions in order that the stateroom
containing the trunk in which they kept the money should be
properly guarded by members of the crew and put in such
condition that it would be impossible to steal the trunk from
it or that persons not belonging to the vessel might force an
entrance into the stateroom from the outside, but also they
did not expressly station some person inside the stateroom
for the guarding and safe-keeping of the trunk, for it was not
proven that the cabin-boy Gabriel slept there, as the master
of the vessel, Ipil, stated, nor that the other Cabin-boy,
Simeon Solamo, was on guard that night, for the latter
contradicted the statements made by the two defendants on
this point. On the contrary, it was proven by the master's
own statement that all the people of the vessel, including
himself and the supercargo Solamo, slept soundly that
night; which fact cannot, in any manner, serve them as an
excuse, nor can it be accepted as an explanation of the
statement that they were not aware of what was then
occuring on board, if the trunk was actually stolen by
outsiders and removed through the small window of the
stateroom, a detail which also was not proven, but, on the
contrary, increases their liability, because it is very strange
that none of them, who were six and were around or near
the stateroom, should have heard the noise which the
robbers must have made in breaking its window. All of
these circumstances, together with that of its having been
impossible to know who took the trunk and the money and
the failure to recover the one or the other make the conduct
of the two defendants and of the other members of the crew
of banca, eminently supicious and prevent our holding that
the disappearance or loss of the money was due to a
fortuitous event, to force majeure, or that it was an
occurrence which could not have been foreseen, or which,
if foreseen, was inevitable.
It is unquestionable that the defendants Glicerio Ipil and
Justo Solamo were the carriers of the said P450 belonging
to the plaintiff, and that they received this sum from the
latter for the purpose of delivering it to the store of the town
of Catmon, to which it had been consigned. Under such
circumstances, said defendants were the depositaries of
the money.lawphi1.net
Manresa, in his Commentaries on the Civil Code (Vol. 10,
p. 773), in treating of the provisions of the said code
concerning transportation by sea and by land of both
persons and things, says:
Liability of carriers. — In order that a thing may be
transported, it must be delivered to the carrier, as the Code
says. From the time it is delivered to the carrier or shipper
until it is received by the consignee, the carrier has it in his
possession, as a necessary condition for its transportation,
and is obliged to preserve and guard it; wherefore it is but
natural and logical that he should be responsible for it.
The Code discovers in the relation of all these elements the
factors which go to make up the conception of a trust, and,
taking into account that the delivery of the thing on the part
of the shipper is unavoidable, if the transportation is to take
place, esteem that, at least in certain respects, such trusts
are necessary.
The said two defendants being the depositaries of the sum
in question, and they having failed to exercise for its safe-
keeping the diligence required by the nature of the
obligation assumed by them and by the circumstances of
the time and the place, it is evident that, in pursuance of the
provisions of articles 1601 and 1602, in their relation to
articles 1783 and 1784, and as prescribed in articles 1770,
of the Civil Code, they are liable for its loss or misplacement
and must restore it to the plaintiff, together with the
corresponding interest thereon as an indemnity for the
losses and damages caused him through the loss of the
said sum.
With respect to the other defendant, Narciso Lauron, as he
was the owner of the vessel in which the loss or
misplacement of the P450 occurred, of which vessel, as
aforestated, Glicerio Ipil was master and Justo Solamo,
supercargo, both of whom were appointed to, or chosen for,
the positions they held, by the defendant himself, and, as
the aforementioned sum was delivered to the said master,
Ipil, and the merchandise to be transported by means of
said vessel from the port of Cebu to the town of Catmon
was laden by virtue of a contract executed by and between
the plaintiff and the owner of the vessel, Narciso Lauron, it
behooves us to examine whether the latter, also, should be
held to be liable, as requested by the plaintiff in his
complaint.
Said vessel was engaged in the transportation of
merchandise by sea and made voyages to and from the
port of Cebu to Catmon, and had been equipped and
victualed for this purpose by its owner, Narciso Lauron, with
whom, as aforesaid, the plaintiff contracted for the
transportation of the merchandise which was to be carried,
on the date hereinabove mentioned, from the port of Cebu
to the town of Catmon.
For legal purposes, that is, for the determination of the
nature and effect of the relations created between the
plaintiff, as owner of the merchandise laden on said craft
and of the money that was delivered to the master, Ipil, and
the defendant Lauron, as owner of the craft, the latter was a
vessel, according to the meaning and construction given to
the word vessel in the Mercantile Code, in treating of
maritime commerce, under Title 1,
Book 3.
The word vessel serves to designate every kind of craft by
whatever particular or technical name it may now be known
or which nautical advancements may give it in the future.
(Commentaries on the Code of Commerce, in the General
Review of Legislation and Jurisprudence, founded by D.
Jose Reus y Garcia, Vol., 2 p. 136.)
According to the Dictionary of Legislation and
Jurisprudence by Escriche, a vessel is any kind of craft,
considering solely the hull.
Blanco, the commentator on mercantile law, in referring to
the grammatical meaning of the word "ship" and "vessels,"
says, in his work aforecited, that these terms designate
every kind of craft, large or small, whether belonging to the
merchant marine or to the navy. And referring to their
juridical meaning, he adds: "This does not differ essentially
from the grammatical meaning; the words "ship" and
"vessel" also designate every craft, large or small, so long
as it be not an accessory of another, such as the small boat
of a vessel, of greater or less tonnage. This definition
comprises both the craft intended for ocean or for coastwise
navigation, as well as the floating docks, mud lighters,
dredges, dumpscows or any other floating apparatus used
in the service of an industry or in that of maritime
commerce. . . ." (Vol. 1, p. 389.)
According to the foregoing definitions, then, we should that
the banca called Maria, chartered by the plaintiff Yu Con
from the defendant Narciso Lauron, was a "vessel",
pursuant to the meaning this word has in mercantile law,
that is, in accordance with the provisions of the Code of
Commerce in force.
Glicerio Ipil, the master of the said banca Maria, must also
be considered as its captain, in the legal acceptation of this
word.
The same Code of Commerce in force in these Islands
compares, in its article 609, masters with captains. It is to
be noted that in the Code of Commerce of Spain the
denomination of arraeces is not included in said article as
equivalent to that of masters, as it is in the Code of these
Islands.
Commenting on said article, the aforementioned General
Review of Legislation and Jurisprudence says:
The name of captain or master is given, according to the
kind of vessel, to the person in charge of it.
The first denomination is applied to those who govern
vessels that navigate the high seas or ships of large
dimensions and importance, although they be engaged in
the coastwise trade.
Masters are those who command smaller ships engaged
exclusively in the coastwise trade.
For the purposes of maritime commerce, the words
"captain" and "master" have the same meaning; both being
the chiefs or commanders of ships. (Vol. 2, p. 168.)
Article 587 of the Code of Commerce in force provides:
The agent shall be civilly liable for the indemnities in favor
of third persons which arise from the conduct of the captain
in the care of the goods which the vessel carried; but he
may exempt himself therefrom by abandoning the vessel
with all her equipments and the freight he may have earned
during the trip.
Article 618 of the same Code also prescribes:
The captain shall be civilly liable to the agent and the latter
to the third persons who may have made contracts with the
former —
1. For all the damages suffered by the vessel and its cargo
by reason of want of skill or negligence on his part, If a
misdemeanor or crime has been committed he shall be
liable in accordance with the Penal Code.
2. For all the thefts committed by the crew, reserving his
right of action against the guilty parties.
The Code of Commerce previous to the one now in force, to
wit, that of 1829, in its article 624, provided that the agent or
shipowner should not be liable for any excesses which,
during the navigation, might be committed by the captain
and crew, and that, for the reason of such excesses, it was
only proper to bring action against the persons and property
of those found guilty.
Estasen, in his work on the Institutes of Mercantile Law
(Vol. 4, p. 280), makes the following remarks, in referring to
the exposition of reasons presented by the Code
Commission which prepared and presented for approval the
Code of Commerce now in force, in which exposition of
reasons were set forth the fundamental differences
between the provisions contained in both codes, with
respect to the subject-matter now under discussion. He
says:
Another very important innovation introduced by the Code
is that relative to the liability for misdemeanors and crimes
committed by the captain or by members of the crew. This
is a matter of the greatest importance on which a variety of
opinions has been expressed by different juris-consults.
The old code declares the captain civilly liable for all
damage sustained by the vessel or its cargo through lack of
skill or care on his part, through violations of the law, or
through unlawful acts committed by the crew. As regards
the agent or shipowners, it declares in unmistakeable terms
that he shall in no wise be liable for any excesses which,
during the navigation, may be committed by the captain and
the crew.
Upon an examination, in the light of the principles of
modern law, of the standing legal doctrine on the non-
liability of the shipowner for the unlawful acts, that is, the
crimes or quasi crimes, committed by the captain and the
crew, it is observed that it cannot be maintained in the
absolute and categorical terms in which it is formulated.
It is well and good that the shipowner be not held criminally
liable for such crimes or quasi crimes; but the cannot be
excused from liability for the damage and harm which, in
consequence of those acts, may be suffered by the third
parties who contracted with the captain, in his double
capacity of agent and subordinate of the shipowner himself.
In maritime commerce, the shippers and passengers in
making contracts with the captain do so through the
confidence they have in the shipowner who appointed him;
they presume that the owner made a most careful
investigation before appointing him, and, above all, they
themselves are unable to make such an investigation, and
even though they should do so, they could not obtain
complete security, inasmuch as the shipowner can,
whenever he sees fir, appoint another captain instead.
The shipowner is in the same case with respect to the
members of the crew, for, though he does not appoint
directly, yet, expressly or tacitly, he contributes to their
appointment.
On the other hand, if the shipowner derives profits from the
results of the choice of the captain and the crew, when the
choice turns out successful, it is also just that he should
suffer the consequences of an unsuccessful appointment,
by application of the rule of natural law contained in the
Partidas, viz., that he who enjoys the benefits derived from
a thing must likewise suffer the losses that ensue
therefrom.
Moreover, the Penal Code contains a general principle that
resolves the question under consideration, for it declares
that such persons as undertake and carry on any iondustry
shall be civilly liable, in default of those who may be
criminally liable, for the misdemeanors and crimes
committed by their subordinates in the discharge of their
duties.
The Code of Commerce in force omits the declaration of
non-liability contained in the old code, and clearly makes
the shipowner liable civilly for the loss suffered by those
who contracted with the captain, in consequence of the
misdemeanors and crimes committed by the latter or by the
members of the crew.
It is therefore evident that, in accordance with the
provisions of the Code of Commerce in force, which are
applicable to the instance case, the defendant Narciso
Lauron, as the proprietor and owner of the craft of which
Glicerio Ipil was the master and in which, through the fault
and negligence of the latter and of the supercago Justo
Solamo, there occurred the loss, theft, or robbery of the
P450 that belonged to the plaintiff and were delivered to
said master and supercargo, a theft which, on the other
hand, as shown by the evidence, does not appear to have
been committed by a person not belonging to the craft,
should, for said loss or theft, be held civilly liable to the
plaintiff, who executed with said defendant Lauron the
contract for the transportation of the merchandise and
money aforementioned between the port of Cebu and the
town of Catmon, by means of the said craft.
Therefore, the trial court did not err in so holding in the
judgement appealed from.
The plaintiff having filed his answer to the cross-complaint
as soon as the defendant presented their motion for] a
declaration of the plaintiff's default in connection with said
cross-complaint, and it being optional with the court to
make in such cases the declaration of default, as provided
in section 129 of the Code of Civil Procedure, the said court
did not incur the second error assigned by the appellants in
their brief.
Lastly, as the banca Maria did not make the trip she should
have made from the port of Cebu to the town of Catmon, on
the occasion in question, through cases chargeable, as has
been seen, to the captain and the supercargo of said
banca, to wit, because of the loss, theft of robbery of the
P450 belonging to the plaintiff, and as a contract was made
for the transportation of the said sum and the merchandise
from one of said points to the other, for the round trip, and
not through payment by the plaintiff of the wages due the
crew for each day, as alleged by the defendants, for the
proofs presented by the latter in regard to this point were
insufficient, as the trial court so held, neither did the latter
incur error in overruling the cross-complaint formulated by
the defendants in their answer against the plaintiff.
Therefore, and for all the reasons above set forth, we affirm
the judgment appealed from, with the costs of this instance
against the appellants. So ordered.
G.R. No. L-29166 October 22, 1928
AUGUSTO LOPEZ, plaintiff-appellant, vs.JUAN
DURUELO, ET AL., defendants. ALBINO JISON,
appellee.
STREET, J.:
This action was instituted in the Court of First Instance of
Occidental Negros by Augusto Lopez, for the purpose of
recovering damages for personal injuries inflicted upon him
by reason of the negligence of the defendants, Juan
Duruelo and Albino Jison. The defendants demurred to the
complaint, and the demurrer having been sustained, the
plaintiff elected to stand upon his complaint, which was
accordingly dismissed; and the plaintiff appealed.
The facts necessary to an understanding of the case as set
out in the complaint are briefly these: On February 10,
1927, the plaintiff, who is a resident of the municipality of
Silay, Occidental Negros, was desirous of embarking upon
the interisland steamer San Jacinto in order to go to Iloilo.
This boat was at the time in the anchoring-ground of the
port of Silay, some half a mile distant from the port. The
plaintiff therefore embarked at the landing in the motor boat
Jison, which was then engaged in conveying passengers
and luggage back and forth from the landing to boats at
anchor, and which was owned and operated by the
defendant Albino Jison, with Juan Duruelo as patron. The
engineer (maquinista) aboard on this trip was one Rodolin
Duruelo, a boy of only 16 years of age. He is alleged to
have been a mere novice without experience in the running
of motor boats; and the day of the occurrence now in
contemplation is said to have been the third day of his
apprenticeship in this capacity. It is alleged that the Jison,
upon this trip, was grossly overladen, having aboard
fourteen passengers, while its capacity was only for eight or
nine. As the motor boat approached the San Jacinto in a
perfectly quiet sea, it came too near to the stern of the ship,
and as the propeller of the ship had not yet ceased to turn,
the blades of the propeller struck the motor boat and sank it
at once. It is alleged in the complaint that the approach of
the Jison to this dangerous proximity with the propeller of
the San Jacinto was due to the fault, negligence and lack of
skill of the defendant Juan Duruelo, as patron of the Jison.
As the Jison sank, the plaintiff was thrown into the water
against the propeller, and the revolving blades inflicted
various injuries upon him, consisting of a bruise in the
breast, two serious fractures of the bones of the left leg,
and a compound fracture of the left femur. As a
consequence of these injuries the plaintiff was kept in bed
in a hospital in the City of Manila from the 28th of February
until October 19 of the year 1927, or approximately eight
months. In the conclusion of his complaint the plaintiff sets
out the various items of damage which he suffered,
amounting in all to something more than P120,000. These
damages he seeks to recover of the defendants in this
action.
As a general ground of demurrer it is assigned by the
defendants that the complaint does not show a right of
action, and in the course of the argument submitted with the
demurrer attention is directed to the fact that the complaint
does not allege that a protest had been presented by the
plaintiff, within twenty-four hours after the occurrence, to the
competent authority at the port where the accident occured.
It is accordingly insisted that, under article 835 of the Code
of Commerce, the plaintiff has shown no cause of action.
"The action for the recovery of loss and damages arising from
collisions can not be admitted if a sworn statement or declaration
is not presented within twenty-four hours to competent authority of
the point where the collision took place, or that of the first port of
arrival of the vessel."
Assuming that the article of the Code of Commerce relied
upon states a condition precedent to the maintenance of an
action in case where protest is required and that the making
of protest must be alleged in the complaint in order to show
a good cause of action — an assumption that is possibly
without basis, for the reason that lack of protest in a case
where protest is necessary would seem to supply matter of
defense proper to be set up in the answer, — we
nevertheless are of the opinion that protest was not
necessary in the case now before us. The article in
question (835, Code of Com.) is found in the section
dealing with collisions, and the context shows the collisions
intended are collisions of sea-going vessels. Said article
cannot be applied to small boats engaged in river and bay
traffic. The Third Book of the Code of Commerce, dealing
with Maritime Commerce, of which the section of Collisions
forms a part, was evidently intended to define the law
relative to mechant vessels and marine shipping; and, as
appears from said Code, the vessels intended in that Book
are such as are run by masters having special training, with
the elaborate apparatus of crew and equipment indicated in
the Code. The word "vessel" (Spanish "buque," "nave"),
used in the section referred to was not intended to include
all ships, craft or floating structures of every kind without
limitation, and the provisions of that section should not be
held to include minor craft engaged only in river and bay
traffic. Vessels which are licensed to engage in maritime
commerce, or commerce by sea, whether in foreign or
coastwise trade, are no doubt regulated by Book III of the
Code of Commerce. Other vessels of a minor nature not
engaged in maritime commerce, such as river boats and
those carrying passengers from ship to shore, must be
governed, as to their liability to passengers, by the
provisions of the Civil Code or other appropriate special
provisions of law.
This conclusion is substantiated by the writer Estasen who
makes comment upon the word "vessel" to the following
effect:
When the mercantile codes speak of vessels, they refer
solely and exclusively to merchant ships, as they do not
include war ships furthermore, they almost always refer to
craft which are not accessory to another as is the case of
launches, lifeboats, etc. Moreover, the mercantile laws, in
making use of the words ship, vessels, boat, embarkation,
etc., refer exclusively to those which are engaged in the
transportation of passengers and freight from one port to
another or from one place to another; in a word, they refer
to merchant vessels and in no way can they or should they
be understood as referring to pleasure craft, yachts,
pontoons, health service and harbor police vessels, floating
storehouses, warships or patrol vessels, coast guard
vessels, fishing vessels, towboats, and other craft destined
to other uses, such as for instance coast and geodetic
survey, those engaged in scientific research and
exploration, craft engaged in the loading and discharge of
vessels from same to shore or docks, or in transhipment
and those small craft which in harbors, along shore, bays,
inlets, coves and anchorages are engaged in transporting
passengers and baggage. (Estasen, Der. Mer., vol IV, p.
195.)
In Yu Con vs. Ipil (41 Phil., 770), this court held that a small
vessel used for the transportation of merchandise by sea
and for the making of voyages from one port to another of
these Islands, equipped and victualed for this purpose by its
owner, is a vessel, within the purview of the Code of
Commerce, for the determination of the character and effect
of the relations created between the owners of the
merchandise laden on it and its owner. In the case before
us the Jison, as we are informed in the complaint, was
propelled by a second-hand motor, originally used for a
tractor plow; and it had a capacity for only eight persons.
The use to which it was being put was the carrying of
passengers and luggage between the landing at Silay and
ships in the harbor. This was not such a boat as is
contemplated in article 835 of the Code of Commerce,
requiring protest in case of collision.
In Yu Con vs. Ipil, supra, the author of the opinion quotes a
passage from the treaties on Mercantile Law by Blanco. We
now have before us the latest edition of Blanco, and we
reproduced here, in both Spanish and English, not only the
passage thus quoted but also the sentence immediately
following said passage; and this latter part of the quotation
is quite pertinent to the point now under consideration.
Says Blanco: Las palabras "nave" y "buque", en su sentido
gramatical se aplican para designar cualquier clase de
embarcaciones, grandes o pequenas, mercantes o de
guerra, significacion que no difiere esencialmente de la
juridica, con arreglo a la cual se consideran buques para
los efectos del Codigo y del Reglamento para la
organizacion del Registro mencantile, no solo las
embarcaciones destinadas a la navegacion de cabo taje o
altura, sino tambien los diques flotantes, pontones, dragas,
ganguiles y cualquier otro aparato flotante destinado a
servicios de la industria o del comercio maritimo. "Aun
cuando, corforme a este concepto legal, parece que todo
aparato flotante que sirve directamente para el trasporte de
cosas o personas, o que inderectamente se relacionen con
esta industria, han de sujertarse a los preceptos del Codigo
sobre propiedad, transmision, derechos, inscripciones, etc.,
entendemos con el Sr. Benito (obra cit.) y asi ocurre en la
practica, que no son aplicables a las pequeñas
embarcaciones, que solo estan sujetas a los de la
administracion de marina para el servicio de los puertos o
ejercicio de la industria de la pesca. (Blanco, Der. Mer., vol.
II, pag. 22.)
The words "ship" (nave) and "vessel" (buque), in their
grammatical sense, are applied to designate every kind of
craft, large or small, merchant vessels or war vessels, a
signification which does not differ essentially from its
juridical meaning, according to which vessels for the
purposes of the Code and Regulations for the organization
of the Mercantile Registry, are considered not only those
engaged in navigation, whether coastwise or on the high
seas, but also floating docks, pantoons, dredges, scows
and any other floating apparatus destined for the service of
the industry or maritime commerce.
Yet notwithstanding these principles from which it would
seem that any
floating apparatus which serves directly for the
transportation of things or persons or which inderectly is
related to this industry, ought to be subjected to the
principles of the Code with reference to ownership, transfer,
rights, registration, etc., we agre with Benito (obra cit.) and
it so happens in practice that they are not aplicable to small
which are subject to administrative (customs) regulations in
the matter of port service and in the fishing
industry.1awph!l.net
We may add that the word "nave" in Spanish, which is used
interchangeably with "buque" in the Code of Commerce,
means, according to the Spanish-English Dictionary
complied by Edward R. Bensley and published at Paris in
the year 1896, "Ship, a vessel with decks and sails."
Particularly significant in this definition is the use of the
word "decks" since a deck is not a feature of the smallest
types of water craft.
In this connection a most instructive case from a Federal
Court in the United States is that of the Mamie (5 Fed.,
813), wherein it was held that only vessels engaged in what
is ordinarily known as maritime commerce are within the
provisions of law conferring limited liability on the owner in
case maritime disaster. In the course of the opinion in that
case the author cites the analogous provisions in the laws
of foreign maritime, nations, especially the provisions of the
Commercial Code of France; and it is observed that the
word "vessel" in these codes is limited to ships and other
sea-going vessels. "Its provisions are not applicable," said
the court, "to vessels in inland navigation, which are
especially designated by the name of boats." Quoting from
the French author Dufour (1 Droit Mer., 121), the writer of
the opinion in the case cited further says: "Thus, as a
general rule, it appears to me clearly, both by the letter and
spirit of the law, that the provisions of the Second Book of
the Commercial Code [French] relate exclusively to
maritime and not to fluvial navigation; and that
consequently the word 'ship' when it is found in these
provisions, ought to be understand in the sense of a vessel
serving the purpose of maritime navigation of seagoing
vessel, and not in the sense of a vessel devoted to the
navigation of rivers."
It is therefore clear that a passenger on a boat like the
Jison, in the case before us, is not required to make protest
as a condition precedent to his right of action for the injury
suffered by him in the collision described in the complaint.
In other words, article 835 of the Code of Commerce does
not apply. But even if said provision had been considered
applicable to the case in hand, a fair interpretation of the
allegations of the complaint indicates, we think, that the
injuries suffered by the plaintiff in this case were of such a
nature as to excuse protest; for, under article 836, it is
provided that want to protest cannot prejudice a person not
in a condition to make known his wishes. An individual who
has suffered a compound fracture of the femur and
received other physical injuries sufficient to keep him in a
hospital for may months, cannot be supposed to have in a
condition to make protest within twenty-four hours of such
occurrence. It follows that the demurrer in this case was not
well taken and should have been overruled.
In their brief in this court the attorneys for the defendant
have criticised the complaint for a general lack of certainty
and precision in more than one respect. However, we have
read the document attentively and, in our opinion, it states a
good cause of action upon a civil liability arising from tort
under articles 1902 and 1903 of the Civil Code, and our
attention has not been drawn to any provision of law which
would constitute an obstacle to the maintenance of the
action.
We have repeatedly called the attention of trial courts to the
general rule that a case should not be dismissed on
demurrer when, under any reasonable interpretation of the
complaint, a cause of action can be made out; and the fact
that a complaint is inartificially drawn or in a certain degree
lacking in precision constitutes no sufficient reason for
dismissing it. In passing upon a demurrer, every reasonable
intendment is to be taken in favor of the pleader. In this
connection it should be borne in mind that if a complaint
does not show a good cause of action, the action can be
dismissed at a later stage of the proceedings; and even
where no objection has been previously made, the point
can be raised in the Supreme Court under section 93 of the
Code of Civil Procedure (Abiera vs. Orin, 8 Phil., 193). Little
or no appreciable prejudice to the defendant will therefore
ordinarily result from overruling a demurrer, and no harm is
done to anyone by requiring the defendant to answer. On
the contrary, grave prejudice may result to a plaintiff from
the erroneous sustaining of a demurrer, because of the
delay and even expense necessary to set the matter right
upon appeal.
The judgment appealed from is reversed, the demurrer
overruled, and the defendant is required to answer the
complaint within five days after notification of the return of
this decision to the court of origin. So ordered, with costs
against the appellee.
G.R. No. 130772 November 19, 1999
WALLEM MARITIME SERVICES, INC., and WALLEM
SHIP MANAGEMENT, LTD., petitioners, vs. NATIONAL
LABOR RELATIONS COMMISSION and ELIZABETH
INDUCTIVO, respondents. BELLOSILLO, J.:
WALLEM MARITIME SERVICES, INC. and WALLEM SHIP
MANAGEMENT LTD. in this petition for certiorari assail for
having been rendered with grave abuse of discretion the 30
June 1997 Resolution of the National Labor Relations
Commission dismissing their appeal for lack of merit, as
well as its 29 August 1997 Resolution denying
reconsideration thereof. 1
Sometime in May 1993, Pan-Fil Co. Inc., as manning and
crewing agent in the Philippines of Wallem Ship
Management Ltd. (WALLEM MANAGEMENT), hired
Faustino Inductivo as utilityman for "MT Rowan," a vessel
owned and operated by WALLEM MANAGEMENT, a
Hongkong based shipping company. The employment
contract of Faustino Inductivo was good for ten (10) months
with a compensation of US$360.00 monthly basic salary,
US$201.00 fixed monthly overtime pay, and a monthly
vacation leave with pay for six (6) days. As was the
standard procedure, Faustino Inductivo underwent pre-
employment medical examination and was found by his
employer's doctors to be physically fit for work. So, on 13
May 1993, he was told to board as he did the "MT Rowan."
In November 1993 Wallem Maritime Services, Inc.
(WALLEM SERVICES) took over as WALLEM
MANAGEMENT's manning and crewing agent in the
Philippines. Faustino Inductivo, who was advised of the
takeover, opted to remain on the vessel and to continue his
employment under the manning agency of WALLEM
SERVICES. Barely two (2) months before the expiration of
his employment contract, or on 17 January 1994, he was
discharged from the vessel. His Seaman's Book 2 and
Wages Account 3 indicated that the cause of the discharge
was "mutual consent, on completion of 8 months and 5
days." Accordingly, he disembarked in Hong Kong, travelled
to Manila alone and then returned to his hometown in
Nueva Ecija.
On 19 January 1994, two (2) days after his arrival in the
Philippines, he was hospitalized at the Yamsuan Medical
Clinic in Gapan, Nueva Ecija, after complaining of
occasional coughing and chest pains. The clinical diagnosis
was pneumonities, bilateral. As his condition worsened,
Faustino Inductivo was rushed to the Lung Center of the
Philippines where a mass was found on his right lung and
another on his right neck. His doctor advised him to
undergo biopsy treatment, but since he was scared he
requested to go on medication at home instead. Two (2)
days thereafter, Faustino Inductivo returned to the hospital,
this time at the De Ocampo Memorial Medical Center. Dr.
Alfredo Sales, his attending physician, found on
examination the presence of water in his lungs causing
shortness of breath. For insufficiency of medical facilities,
however, he was transferred to the Makati Medical Center
where his doctor finally abandoned all hopes for his
recovery as his disease was already in its advanced stage.
He succumbed to his illness on 23 April 1994 and the
autopsy report showed as cause of death disseminated
intravascular coagulations, septecalmia, pulmonary
congestion and multiple intestinal obstruction secondary to
multiple adhesions. 4
Before Faustino Inductivo's death, or sometime in February
1994, herein private respondent Elizabeth Inductivo went to
petitioners to claim the balance of her husband's leave
wages. She also inquired about his sickness benefits as he
was then very sick. Petitioners however informed her that
her husband was not entitled to sickness benefits because
he was not sick at the time he was "offsigned" from the
vessel; he was "offsigned" from the vessel on "mutual
consent" and not on medical grounds; and since he failed to
advise or notify petitioners in writing within seventy-two (72)
hours of his alleged sickness, his right to claim sickness
benefits was deemed forfeited. Consequently, at the
instance of Faustino Inductivo, private respondent filed an
affidavit-complaint against petitioners for the payment of
sickness and insurance benefits. After Faustino Inductivo
died his complaint was amended by private respondent to
include death benefits.
On 24 September 1996 the Labor Arbiter 5 rendered a
decision in favor of private respondent ordering petitioners
to pay complainant, for herself and in her capacity as
guardian of her two (2) minor children, as follows:
US$50,000.00 as death benefits; US$14,000.00 as
children's allowances; and US$1,000.00 as burial
expenses.
On appeal the NLRC sustained the Labor Arbiter. In its
Resolution of 30 June 1997 the NLRC held in part —
It may be true that the deceased failed to report to
respondent Wallem Maritime within seventy two hours after
arrival in the Philippines but it could not be denied also that
the deceased was sick when he arrived. Human mind
dictates that a medical consultation at the nearest clinic is
necessary before anything else. The wife could not
immediately advise the respondent due to the situation of
her deceased husband . . . . The allegation of the
complainant that her husband was repatriated upon petition
of the crew due to the deteriorating physical condition of
Faustino Inductivo, was not denied by respondent. The
defense of the latter that the repatriation of the deceased
was by "mutual consent" and not discharged medically
deserves scant consideration. It is to be emphasized that
the illness was contracted during the deceased's
employment on board "MT Rowan." Suffice it to say that the
death of Faustino Inductivo is compensable under the
circumstances.
Their motion for reconsideration having been denied by the
NLRC in its Resolution of 29 August 1997, petitioners are
now before us imputing grave abuse of discretion on the
part of the NLRC in: (a) totally disregarding the evidence on
record; (b) ignoring and disregarding the existing law and
jurisprudence on the matter; and, (c) affirming in toto the
Labor Arbiter's award of death compensation in favor of
private respondent.
The pivotal issue to be resolved is whether the death of
Faustino Inductivo is compensable as to entitle his wife and
children to claim death benefits. Petitioners insist that it is
not compensable for two (2) principal reasons: first,
Faustino Inductivo was offsigned from the vessel "MT
Rowan" based on "mutual consent" and not on medical
grounds, and the cancer which caused his death was not
contracted during his employment but was a pre-existing
condition; and second, Faustino Inductivo failed to comply
with the mandatory seventy-two (72)-hour reporting
requirement prescribed by the POEA standard employment
contract, and therefore his right to claim benefits was
deemed forfeited.
Petitioners would want to impress upon this Court that
Faustino Inductivo was still in good health when he
disembarked from "MT Rowan," as shown in his Seaman's
Book indicating that the cause of his discharge was "mutual
consent in writing" and not on medical grounds.
We disagree. From all indications, Faustino Inductivo was
already in a deteriorating physical condition when he left the
vessel. This is the only plausible reason why with barely
two (2) months away from the expiration of his employment
contract he was all of a sudden and with no rational
explanation discharged from the vessel. This conclusion is
buttressed by the events that transpired immediately upon
his arrival in the Philippines, i.e., he was hospitalized two
(2) days later and died three (3) months after.
Thus, as succinctly observed by the Labor Arbiter —
While it's true that the seaman was offsigned from the
vessel by "mutual consent," what could have been the
compelling reason why only less than two (2) months away
before the expiration of his employment contract, he
decided to disembark. Then there is the question about the
true state of his health at the time he disembarked. The
puzzle of course is why two (2) days upon his
disembarkation complainant's husband lapsed into his
ordeal immediately serious at the onset without any sign of
relief until his last breath barely three months thereafter.
It is indeed unthinkable that the deceased seaman at the
homestretch of his voyage would suddenly seek the end of
his employment for no reason at all. There is only one
logical explanation for this given the circumstances that
took place immediately after disembarkation. Complainant's
husband was already seriously ill when he (was)
discharged from the vessel. This conclusion is supported by
the fact that barely two (2) days upon his arrival in the
Philippines, he was rushed to a local medical clinic for
some serious symptoms. There being no relief after six (6)
days of medical attendance, the late seaman was
transferred to the Lung Center of the Philippines. Again, as
there was likewise no relief obtained the family was
constrained to seek further work-outs in two (2) other
hospitals, the last of which was at the Makati Medical
Center where all clinical procedures and work-outs were
ruled out as of no consequence since the deceased's
condition at the time was already irreversible.
There is likewise no merit in petitioners' theory that Faustino
Inductivo died of cancer which was pre-existing and could
not have been contracted during the eight (8)-month period
of his employment at the vessel. Primarily, both the Death
Certificate 6 and Autopsy Report of Faustino Inductivo
never mentioned that the cause of death was cancer. What
was mentioned was "septicemia," if we go by the Death
Certificate, and "disseminated intravascular coagulations,
septecalmia, pulmonary congestion, multiple intestinal
obstruction secondary to multiple adhesions," if we refer to
the autopsy report. Ostensibly, cancer was not in the list.
Indeed, there was never any categorical or conclusive
finding that Faustino Inductivo was afflicted with cancer.
Petitioners' extensive discussion in support of their "cancer
theory" is nothing more than mere speculations cloaked in
medical gibberish. Moreover, we agree with private
respondent that opinions of petitioners' doctors to this effect
should not be given evidentiary weight as they are palpably
self-serving and biased in favor of petitioners, and certainly
could not be considered independent. These medical
opinions cannot prevail over the entries in the Death
Certificate and Autopsy Report.
Furthermore, before Faustino Inductivo was made to sign
the employment contract with petitioners he was required to
undergo, as a matter of procedure, medical examinations
and was declared fit to work by no less than petitioners'
doctors. Petitioners cannot now be heard to claim that at
the time Faustino Inductivo was employed by them he was
afflicted with a serious disease, and that the medical
examination conducted on the deceased seaman was not
exploratory in nature such that his disease was not
detected in the first instance. Being the employer,
petitioners had all the opportunity to pre-qualify, screen and
choose their applicants and determine whether they were
medically, psychologically and mentally fit for the job upon
employment. The moment they have chosen an applicant
they are deemed to have subjected him to the required pre-
qualification standards.
But even assuming that the ailment of Faustino Inductivo
was contracted prior to his employment on board "MT
Rowan," this is not a drawback to the compensability of the
disease. It is not required that the employment be the sole
factor in the growth, development or acceleration of the
illness to entitle the claimant to the benefits provided
therefor. It is enough that the employment had contributed,
even in a small degree, to the development of the disease
and in bringing about his death.
It is indeed safe to presume that, at the very least, the
nature of Faustino Inductivo's employment had contributed
to the aggravation of his illness — if indeed it was pre-
existing at the time of his employment — and therefore it is
but just that he be duly compensated for it. It cannot be
denied that there was at least a reasonable connection
between his job and his lung infection, which eventually
developed into septicemia and ultimately caused his death.
As a utilityman on board the vessel, he was exposed to
harsh sea weather, chemical irritants, dusts, etc., all of
which invariably contributed to his illness.
Neither is it necessary, in order to recover compensation,
that the employee must have been in perfect condition or
health at the time he contracted the disease. Every
workingman brings with him to his employment certain
infirmities, and while the employer is not the insurer of the
health of the employees, he takes them as he finds them
and assumes the risk of liability. If the disease is the
proximate cause of the employee's death for which
compensation is sought, the previous physical condition of
the employee is unimportant and recovery may be had
therefor independent of any pre-existing disease. 7
On the alleged failure of private respondent to comply with
the seventy-two (72)-hour reporting requirement, the POEA
Standard Employment Contract Governing the Employment
of All Filipino Seamen on Board Ocean Going Vessel, 8
provides in part —
. . . . the seaman shall submit himself to a post-employment
medical examination by the company-designated physician
within three working days upon his return, except when he
is physically incapacitated to do so, in which case a written
notice to the agency within the same period is deemed as
compliance. Failure of the seaman to comply with the
mandatory requirement shall result in his forfeiture of the
right to claim the above benefits (Emphasis supplied).
Admittedly, Faustino Inductivo did not subject himself to
post-employment medical examination within three (3) days
from his return to the Philippines, as required by the above
provision of the POEA standard employment contract. But
such requirement is not absolute and admits of an
exception, i.e., when the seaman is physically incapacitated
from complying with the requirement. Indeed, for a man
who was terminally ill and in need of urgent medical
attention one could not reasonably expect that he would
immediately resort to and avail of the required medical
examination, assuming that he was still capable of
submitting himself to such examination at that time. It is
quite understandable that his immediate desire was to be
with his family in Nueva Ecija whom he knew would take
care of him. Surely, under the circumstances, we cannot
deny him, or his surviving heirs after his death, the right to
claim benefits under the law.
Similarly, neither could private respondent Elizabeth
Inductivo be expected to have thought of, much less had
the leisure of time to travel all the way to Manila, to notify
petitioners of her husband's condition. Her primary concern
then was to take care of her husband who was at the brink
of death.
At any rate, it appears that in early February 1994 private
respondent went to petitioners to claim the balance of her
husband's leave wages. She then informed petitioners of
the condition of her husband as well as his confinement in a
hospital, and inquired about the sickness benefits she
intended to claim. This was more than sufficient actual
notice to petitioners.
It is relevant to state that the POEA standard employment
contract is designed primarily for the protection and benefit
of Filipino seamen in the pursuit of their employment on
board ocean-going vessels. Its provisions must, therefore,
be construed and applied fairly, reasonably and liberally in
favor or for the benefit of the seamen and their dependents.
Only then can its beneficent provisions be fully carried into
effect.
Finally, petitioner WALLEM SERVICES as manning agent
is jointly and severally liable with its principal, WALLEM
MANAGEMENT, for the claims of the heirs of Faustino
Inductivo in accordance with Sec. 1, Rule II of the POEA
Rules and Regulations. 9
WHEREFORE, the petition is DISMISSED. The assailed
Resolutions of public respondent National Labor Relations
Commission dated 30 June 1997 and 29 August 1997,
respectively dismissing petitioners' appeal for lack of merit
and denying reconsideration thereof, are AFFIRMED.
Petitioners are ordered to pay, jointly and severally, the
following amounts to private respondent for herself and in
her capacity as guardian of her two (2) minor children:
US$50,000.00 as death benefits; US$14,000.00 as
children's allowances; and US$1,000.00 as burial
expenses. Costs against petitioners.
G.R. No. L-41506 March 25, 1935
PHILIPPINE REFINING CO., INC., plaintiff-appellant,
vs.FRANCISCO JARQUE, JOSE COROMINAS, and
ABOITIZ & CO., defendants. JOSE COROMINAS, in his
capacity as assignee of the estate of the insolvent
Francisco Jarque, appellee.
MALCOLM, J.:
First of all the reason why the case has been decided by
the court in banc needs explanation. A motion was
presented by counsel for the appellant in which it was
asked that the case be heard and determined by the court
sitting in banc because the admiralty jurisdiction of the court
was involved, and this motion was granted in regular
course. On further investigation it appears that this was
error. The mere mortgage of a ship is a contract entered
into by the parties to it without reference to navigation or
perils of the sea, and does not, therefore, confer admiralty
jurisdiction. (Bogart vs. Steamboat John Jay [1854], 17
How., 399.)
Coming now to the merits, it appears that on varying dates
the Philippine Refining Co., Inc., and Francisco Jarque
executed three mortgages on the motor vessels Pandan
and Zaragoza. These documents were recorded in the
record of transfers and incumbrances of vessels for the port
of Cebu and each was therein denominated a "chattel
mortgage". Neither of the first two mortgages had appended
an affidavit of good faith. The third mortgage contained
such an affidavit, but this mortgage was not registered in
the customs house until May 17, 1932, or within the period
of thirty days prior to the commencement of insolvency
proceedings against Francisco Jarque; also, while the last
mentioned mortgage was subscribed by Francisco Jarque
and M. N. Brink, there was nothing to disclose in what
capacity the said M. N. Brink signed. A fourth mortgage was
executed by Francisco Jarque and Ramon Aboitiz on the
motorship Zaragoza and was entered in the chattel
mortgage registry of the register of deeds on May 12, 1932,
or again within the thirty-day period before the institution of
insolvency proceedings. These proceedings were begun on
June 2, 1932, when a petition was filed with the Court of
First Instance of Cebu in which it was prayed that Francisco
Jarque be declared an insolvent debtor, which soon
thereafter was granted, with the result that an assignment
of all the properties of the insolvent was executed in favor
of Jose Corominas.
On these facts, Judge Jose M. Hontiveros declined to order
the foreclosure of the mortgages, but on the contrary
sustained the special defenses of fatal defectiveness of the
mortgages. In so doing we believe that the trial judge acted
advisedly.
Vessels are considered personal property under the civil
law. (Code of Commerce, article 585.) Similarly under the
common law, vessels are personal property although
occasionally referred to as a peculiar kind of personal
property. (Reynolds vs. Nielson [1903], 96 Am. Rep., 1000;
Atlantic Maritime Co vs. City of Gloucester [1917], 117 N.
E., 924.) Since the term "personal property" includes
vessels, they are subject to mortgage agreeably to the
provisions of the Chattel Mortgage Law. (Act No. 1508,
section 2.) Indeed, it has heretofore been accepted without
discussion that a mortgage on a vessel is in nature a chattel
mortgage. (McMicking vs. Banco Español-Filipino [1909],
13 Phil., 429; Arroyo vs. Yu de Sane [1930], 54 Phil., 511.)
The only difference between a chattel mortgage of a vessel
and a chattel mortgage of other personalty is that it is not
now necessary for a chattel mortgage of a vessel to be
noted n the registry of the register of deeds, but it is
essential that a record of documents affecting the title to a
vessel be entered in the record of the Collector of Customs
at the port of entry. (Rubiso and Gelito vs. Rivera [1917], 37
Phil., 72; Arroyo vs. Yu de Sane, supra.) Otherwise a
mortgage on a vessel is generally like other chattel
mortgages as to its requisites and validity. (58 C.J., 92.)
The Chattell Mortgage Law in its section 5, in describing
what shall be deemed sufficient to constitute a good chattel
mortgage, includes the requirement of an affidavit of good
faith appended to the mortgage and recorded therewith.
The absence of the affidavit vitiates a mortgage as against
creditors and subsequent encumbrancers. (Giberson vs. A.
N. Jureidini Bros. [1922], 44 Phil., 216; Benedicto de
Tarrosa vs. F. M. Yap Tico & Co. and Provincial Sheriff of
Occidental Negros [1923], 46 Phil., 753.) As a consequence
a chattel mortgage of a vessel wherein the affidavit of good
faith required by the Chattel Mortgage Law is lacking, is
unenforceable against third persons.
In effect appellant asks us to find that the documents
appearing in the record do not constitute chattel mortgages
or at least to gloss over the failure to include the affidavit of
good faith made a requisite for a good chattel mortgage by
the Chattel Mortgage Law. Counsel would further have us
disregard article 585 of the Code of Commerce, but no
reason is shown for holding this article not in force. Counsel
would further have us revise doctrines heretofore
announced in a series of cases, which it is not desirable to
do since those principles were confirmed after due
liberation and constitute a part of the commercial law of the
Philippines. And finally counsel would have us make rulings
on points entirely foreign to the issues of the case. As
neither the facts nor the law remains in doubt, the seven
assigned errors will be overruled.
Judgment affirmed, the costs of this instance to be paid by
the appellant.
[G.R. No. 128661. August 8, 2000]
PHILIPPINE NATIONAL BANK/NATIONAL INVESTMENT
DEVELOPMENT CORPORATION, petitioners, vs. THE
COURT OF APPEALS, CHINA BANKING
CORPORATION, respondents. GONZAGA-REYES, J.:
In this petition for review on certiorari under Rule 45 of the
Rules of Court, petitioners seek the reversal of the 21
March 1997 decisioni[1] of the Court of Appeals in C.A.-
G.R. No. CV-38131. The assailed decision set aside the
Orderii[2] dated 4 March 1992 of the Regional Trial Court of
Makati City, Branch 146 in Civil Case No. 7119 insofar as it
dismissed the complaint-in-intervention of private
respondent China Banking Corporation.
The facts of the case are as follows:
To finance the acquisition of seven (7) ocean-going
vessels, namely M/V Asean Liberty, M/V Asean
Independence, M/V Asean Mission, M/V Asean Knowledge,
M/V Asean Nations, M/V Asean Greatness, and M/V Asean
Objectives, the Philippine International Shipping
Corporation (hereinafter PISC) applied for and was granted
by petitioner National Investment and Development
Corporation (hereinafter NIDC) the following guaranty
accommodations:
a. US$9.44 Million in favor of Ultrafin A.G. of Zurich,
Switzerland as Agent for the banks/financial institutions as
evidenced by and subject to the terms and conditions of a
Guaranty Agreement dated December 7, 1978 to partly
finance the acquisition of two (2) ocean-going vessels;
b. US$23.60 Million in favor of the Philippine National Bank
(hereinafter PNB as evidenced by and subject to the terms
and conditions of a Consolidated Amendatory Agreement
dated January 25, 1979 to finance the acquisition cost of
four (4) additional ocean-going vessels; and
c. US$1.291 Million in favor of PNB as evidenced by and
subject to the terms and conditions of that Second
Consolidated Amendatory Agreement dated July 17, 1979
to finance the additional acquisition cost of one (1) ocean-
going vessel.iii[3]
As security for these guaranty accommodations, PISC
executed in favor of petitioners the following mortgage
documents:
a. Deed of Chattel Mortgage dated September 14, 1979
constituted on M/V Asean Liberty and M/V Asean Nation
and recorded on September 25, 1979 with the Philippine
Coast Guard Headquarters;
b. Supplemental Chattel Mortgage dated October 2, 1979
constituted on M/V Asean Independence, M/V Asean
Mission, M/V Asean Knowledge, and M/V Asean Objectives
and recorded with the Philippine Coast Guard Headquarters
on February 13, 1980; and
c. Supplemental Chattel Mortgage constituted on M/V
Asean Greatness and recorded with the Philippine Coast
Guard Headquarters on February 3, 1981.iv[4]
Meanwhile, on March 12, 1979, PISC entered into a
Contract Agreement with Hong Kong United Dockyards,
Ltd. for the repair and conversion of the vessel M/V Asean
Liberty at a contract price of HK$2,200,000.00 variable as
provided therein.v[5]
On May 28, 1979, the Central Bank of the Philippines
authorized PISC to open with private respondent China
Banking Corporation (hereinafter CBC) a standby letter of
credit for US$545,000.00 in favor of Citibank, N.A.
(hereinafter Citibank) to cover the repair and partial
conversion of the vessel M/V Asean Liberty. This was
pursuant to the letter of the Central Bank of the Philippines
dated May 28, 1979 as amended on June 20, 1979.vi[6]
On June 15, 1979, PISC executed an Application and
Agreement for Commercial Letter of Credit for $545,000.00
with private respondent CBC in favor of Citibank. Pursuant
to this application and agreement, private respondent CBC
issued on September 12, 1979 its Irrevocable Standby
Letter of Credit No. 79/4174 for US$545,000.00 in favor of
Citibank for account of PISC.
On September 17, 1979, a Promissory note for
US$545,000.00 was executed by PISC in favor of Citibank
pursuant to the Loan Agreement for US$545,000.00
between PISC, as borrower, and Citibank, as lender.vii[7]
Upon failure of PISC to fulfill its obligations under the said
promissory note, Citibank sent to private respondent CBC a
letter dated March 25, 1983 drawing on Letter of Credit No.
79/4174. In this letter, Citibank certified that the draft
attached thereto for US$242,225.00 represented the
principal balance due to Citibank as of March 17, 1983
under the promissory note executed by PISC, the proceeds
of which were used for the repair and conversion of M/V
Asean Liberty. Thus, on March 30, 1983, CBC instructed its
correspondent Irving Trust Co., by cable, to pay to Citibank
the amount of US$242,225.00. On the same date, Irving
Trust Co. advised private respondent CBC by mail that the
amount of US$242,225.00 had been debited against CBCs
Account No. 8033278269 and remitted to Citibank.viii[8]
On May 10, 1983, for failure of PISC to settle its obligations
in the amount of US$64,789,470.96, petitioner PNB
conducted, thru the Sheriffs Office, an auction sale of the
mortgaged vessels, except for the vessel M/V Asean
Objective. Petitioner NIDC emerged as the highest bidder in
these auctions.ix[9]
On May 27, 1983, claiming that the foreclosure sale of its
mortgaged vessels was illegal, unjust, irregular, and
oppressive, PISC instituted before the Regional Trial Court
of Makati, a civil casex[10] against petitioners for the
annulment of the foreclosure and auction sale of its vessels
and damages.
As accurately narrated in the trial courts Order and adopted
by the Court of Appeals in its Decision of March 21, 1997,
the following proceedings transpired in the lower court:
Records show that on May 27, 1983, PISC (Philippine
International Shipping Corporation) filed suit against
National Investment and Development Corporation (NIDC,
for short) and Philippine National Bank (PNB, for short) for
annulment of foreclosure of mortgage and auction sale with
damages vis--vis the sale on foreclosure of vessels Asean
Mission, Asean Knowledge, Asean Nations and Asean
Greatness (as well as Asean Liberty and Asean
Independence). NIDC answered the complaint, and in an
amended answer impleaded additional counterclaim
defendants. In an Order dated September 29, 1984, then
Judge Jose L. Coscolluela, Jr. dismissed the complaint as
against PNB and the counterclaimed defendants. And
under date of November 3, 1986, the complaint itself
against and the NIDC counterclaims were dismissed with
prejudice.
In the meantime, NIDC acquired the vessels as highest
bidder in the foreclosure thereof initiated by PNB, NIDC
having thereafter disposed of said vessels in favor of the
National Steel Corporation (NSC).
Complaints in intervention were filed by and for Unitor Ships
Services PTE, Ltd., IMO Industries AB,
UDDVALLARVARVET AB, Hyundai, Shipyard Co., Lloyds,
China bank, Chiang Tung Enterprises Co., Ltd., Pan Asia,
Inc., and HANMF Marine Service, Co., Ltd., for recovery
upon maritime liens against the proceeds of the sale of the
foreclosed vessels. The parties concerned, except for
intervenors Lloyds and China Bank, eventually submitted a
Compromise Agreement dated July 12, 1989, and made the
basis for the Decision of August 23, 1989.
As first stated, there now remain only Lloyds and China
Bank claims in intervention, recovery upon which is covered
by a PNB bank guarantee therefor if found matters of
entitlement (sic) by said intervenors.
Intervenor Lloyds claim is for the service of herein
intervenor Lloyds Register of Shipping to class
aforementioned vessels (M/V Asean Nations and Asean
Greatness) during the period covering July 22, 1981 to July
14, 1983 and the cost for said maritime surveys in the sum
of HK$65,930.00, UKC10,363.45 and P9,653.00 said to
have been unpaid by PISC despite demands. NIDC
traversed the Lloyds claim as not being preferred maritime
liens and in any event inferior in nature.
Intervenor China Banks claims are predicated on (i) a China
Bank Standby Letter of Credit in favor of Citibank, N. A.
purportedly to cover repair and partial conversion of M/V
Asean Liberty, to the extent of US$242,225.00 paid by
China Bank to Citibank, and said to be now owing by PISC
together with stipulated interest; (ii) a China Bank loan of
US$2,700,000.00 as evidenced by a promissory note, the
loan proceeds said to have allowed PISC to reduce
overhead expenses and afford it competitive advantage in
overseas shipping, and to pay for bunker fuel, defray port
expenses and storage, container rental and insurance, as
well as salaries and wages of crew members; and (iii) a
China bank commercial letter of credit to PISC in favor of
Bank of America, particularly a BA Draft for US$648,002.54
said to have been applied towards vessel repair and
conversion by the China Shipbuilding Corporation of
Taiwan, together with stipulated interests due from PISC.
China Banks claims are premised on the above as being
preferred maritime liens. NIDC rejects said claims as not
being maritime liens, much less preferred maritime liens.
Shortly after the undersigned penning Judge assumed his
duties in this Court, Lloyds and China Bank were enjoined
to furnish opposite counsel with copies of the
documentation of their respective claims, to obviate the
necessity of adducing evidence in point on matters capable
of stipulation. Thus, failing formulation of any amicable
settlement in the manner arrived at by all other intervenors,
pre-trial proceedings for the subject last remaining claims in
intervention by and for Lloyds and China Bank resulted in
an August 9, 1991 Pre-Trial Order which set forth-
A. NATURE OF THE CASE
Claimant-intervenor Lloyds Register of Shipping seeks
recovery as unpaid creditor of HK$65,930., UK Pounds
C10,363.45 and P9,653.00 as being in the nature of
preferred maritime liens on the vessels M/V ASEAN
NATIONS and ASEAN GREATNESS, representing costs
for maritime services rendered for said vessels for the
period July 22, 1981 to July 14, 1983.
Intervenor-claimant China Banking Corporation seeks
recovery, as being in the nature of a preferred maritime lien,
of the sum of US$3,890,227.53, representing the totality of
loans extended by said intervenor-claimant said to have
been expended in financing repair and conversion costs, for
expenses and storage container rentals and insurance
premium paid out by it.
Plaintiffs admit the recoverability of said claims as being in
the nature of preferred maritime liens, whereas PNB-NIDC
contests the said claims.
B. STIPULATIONS AND ADMISSIONS.
Plaintiffs, PNB-NIDC and intervenor-claimant Lloyds
Register of Shipping stipulate and admit that the totality of
its claims as fully supported by documentation already
verified by the parties are in the sums of HK$65,930,00,
UKC10,363.45 and P9,653.00.
Plaintiffs, PNB-NIDC and intervenor-claimant China
Banking Corporation stipulate and admit that the totality of
its claim is in the sum of US$3,870,227.53 as fortified by
documentation already verified in point.
C. ISSUES.
The parties have agreed to limit the resolution of the last
two remaining claims in intervention aforementioned to the
following legal questions:
i. Whether or not said claims, in the context in
which they sought to be recovered, are
preferred maritime lien as would entitle said
claims to recover, and
ii. Whether or not assuming recoverability thereon
as being in the nature of maritime liens, such
recovery may be allowed in relation with PNBs
being the mortgagee of the assets from which
recovery is sought.
Considering that the issues to be addressed are purely
legal in nature, presentation of evidence and/or witnesses
in point is unnecessary.xi[11]
After the parties submitted their respective memoranda, the
trial court issued on March 4, 1992 an Order dismissing the
complaint-in-intervention filed by private respondent CBC
for lack of merit. In dismissing the complaint-in-intervention,
the trial court ruled that the claim of private respondent
CBC was not a preferred maritime lien but was merely a
loan extended to PISC by CBC.
Private respondent CBC appealed the Order of the trial
court to the Court of Appeals. In its appeal, private
respondent CBC imputed the following errors allegedly
committed by the trial court:
a) the trial court erred in holding that the loans extended by
China Banking Corporation to the Philippine International
Shipping Corporation did not create maritime liens.
b) assuming that the loans are not themselves maritime
liens, the trial court erred in holding that the China Banking
Corporation did not acquire the maritime liens of Philippine
International Shipping Corporation's creditors by
subrogation.
For its part, herein petitioners PNB/NIDC raised as an issue
in its Appellees Brief before the Court of Appeals the lack of
jurisdiction of the appellate court to entertain and pass upon
the appeal interposed by CBC on the ground that the issues
raised therein were purely legal; and that the appeal of CBC
should have been lodged with the Supreme Court by
petition for review on certiorari.xii[12]
On March 21, 1997, the Court of Appeals promulgated its
questioned decision, the dispositive portion of which states:
WHEREFORE, insofar as the appellant CBC is concerned,
the appealed Order is hereby SET ASIDE and judgment is
rendered:
(a) Directing the appellee Philippine National Bank/National
Investment and Development Corporation to pay the
appellant China Banking Corporation from the proceeds of
the foreclosure sale of M/V Asean Liberty the amount of
US$242,225.00 or its Philippine Peso Equivalent at the time
of payment, with interest thereon at the legal rate from
November 7, 1984, the date of filing of CBCs complaint-in-
intervention, until fully paid; and
(b) Ordering the appellee Philippine International Shipping
Corporation to pay the same CBC the amounts of
US$648,002.54 and US$2.7 Million plus stipulated
interests, arrangement fees, swap premiums, expenses,
losses, taxes and penalties,
In the said decision, the appellate court held petitioners
PNB/NIDC liable to CBC only for the amount of
US$242,225.00, which was used for the repair and
conversion of the M/V Asean Liberty, as it was only this
amount which CBC was able to prove as being a preferred
maritime lien. Moreover, such amount was to be paid by
petitioners PNB/NIDC from the proceeds of the foreclosure
sale of the vessel M/V Asean Liberty. Private respondent
CBCs other claims of US$648,000.54 and US$2.7 Million
were found by the appellate court as not being in the nature
of maritime liens and as such, recoverable only from PISC,
not from herein petitioners PNB/NIDC.
Not satisfied with the decision of the appellate court,
petitioners PNB/NIDC institute the present petition for
review on certiorari where they raise the following issues:
I.WHETHER OR NOT THE COURT OF APPEALS HAS
APPELLATE JURISDICTION TO ENTERTAIN AND PASS
UPON THE APPEAL INTERPOSED BY PRIVATE
RESPONDENT CBC FROM THE ORDER OF THE TRIAL
COURT OF MARCH 4, 1992 WHICH INVOLVED PURE
QUESTIONS OF LAW.
II.WHETHER OR NOT PRIVATE RESPONDENT CBCS
CLAIM FOR US$242,225.OO AS EVIDENCED BY ITS
IRREVOCABLE LETTER OF CREDIT NO. 79/4174 OF
SEPTEMBER 12, 1979 IS IN THE NATURE OF A
MARITIME LIEN UNDER THE PROVISIONS OF P.D. NO.
1521; AND IF SO, WHETHER OR NOT SAID MARITIME
LIEN IS PREFERRED OVER THE MORTGAGE LIEN OF
PETITIONER PNB/NIDC ON THE FORECLOSED VESSEL
M/V ASEAN LIBERTY.
On the first issue, petitioners argue that the Court of
Appeals committed grave error in law in taking cognizance
of the appeal interposed by private respondent CBC from
the Order of the trial court dated 4 March 1992 involving as
it does pure questions of law. They claim that the Court of
Appeals had no jurisdiction to entertain and pass upon the
appeal interposed by private respondent CBC as the issues
raised therein are purely legal. As such, petitioners
continue, the appeal of CBC should have been lodged
directly with the Supreme Court by way of petition for
review on certiorari under Rule 45 of the Revised Rules of
Court. Citing the pronouncement of this Court en banc in
Anacleto Murillo vs. Rodolfo Consulxiii[14], the petitioners
conclude that the appeal made by private respondent CBC
to the Court of Appeals should have been dismissed by the
respondent court for lack of jurisdiction.
It is true that the decisions of the Regional Trial Court may
be directly reviewed by the Supreme Court on petition for
review if pure questions of law are raised. Circular 2-
90,xiv[15] which petitioners cite and which outlined the
applicable rules of procedure on this matter at that time,
indirectly states that cases from the Regional Trial Court
raising only questions of law should be taken to the
Supreme Court. Paragraphs No. 4(c) and (d) of the said
Circular provide as follows:
4. Erroneous Appeals. An appeal taken to either the
Supreme Court of the Court of Appeals by the wrong or
inappropriate mode shall be dismissed.
(c) Raising issues purely of law in the Court of
Appeals or appeal by wrong mode. If an appeal under Rule
41 is taken from the Regional Trial Court to the Court of
Appeals and therein the appellant raises only questions of
law, the appeal shall be dismissed, issues purely of law not
being reviewable by said court. xxx
(d) No transfer of appeals erroneously taken. No transfers of
appeals erroneously taken to the Supreme Court or to the
Court of Appeals to whichever of these Tribunals has
appropriate appellate jurisdiction will be allowed; continued
ignorance or willful disregard of the law on appeals will not
be tolerated.
From the cited provisions, it is clear that the Court of
Appeals does not have jurisdiction over appeals from the
Regional Trial Court that raise purely questions of law.
Appeals of this nature should be raised to the Supreme
Court.xv[16] Furthermore, transfer of erroneous appeals is
not allowed and the tribunal which receives the erroneous
appeal should perforce dismiss the same for lack of
jurisdiction.
Notwithstanding this legal rule, the appeal brought before
the Court of Appeals by the private respondent CBC must
first be analyzed as to whether the same raised questions
or errors of law alone. If the petition raised only questions of
law, then the Court of Appeals had no jurisdiction to take
cognizance of the case and should have dismissed the
case outright. On the other hand, if the petition raised only
questions of fact or questions of both fact and law, then the
Court of Appeals correctly exercised jurisdiction over the
issue.xvi[17]
As such, even if, as in this case, the documentary evidence
adduced by the parties was admitted without objection, a
question of fact is still involved when the query necessarily
invites the calibration of the whole evidence including the
relevancy of surrounding circumstances and their relation to
each other.
On this point, we note with approval the following
justification made by the respondent court in assuming
jurisdiction over the case:
A question of fact has been distinguished from a question of
law in this wise:
At this point, the distinction between a question of fact and
a question of law must be clear. As distinguished from a
question of law which exists when the doubt or difference
arises as to what the law is on certain state of facts there is
a question of fact when the doubt or difference arises as to
the truth or the falsehood of alleged facts; or when the
query necessarily invites calibration of the whole evidence
considering mainly the credibility of witnesses, existence
and relevancy of specific surrounding circumstances, their
relation to each other and to the whole and probabilities of
the situation.(Bernardo vs. Court of Appeals, 216 SCRA
224)
Stated differently, a question of law does not involve an
examination of the probative value of the evidence
presented by the litigants or any of them; otherwise, if such
examination and re-evaluation of the evidence is called for,
a question of fact is raised.
In the decision from which the CBC appealed, the trial court
primarily held that the former is a mere money lender and
not a maritime lienor. In its appeal, the CBC argues that in
so holding, the trial court disregarded the maritime
purposes for which the loans it extended to the Philippine
International Shipping Corporation (PISC) were availed of
and used. The issue thus raised cannot be judiciously
resolved without reviewing the probative weight of the
evidence on record consisting in the main of the various
documents, contracts and transactions attached to CBCs
complaint-in-intervention. It is, therefore, indubitable that
mixed questions of fact and of law are involved over which
this Court has jurisdiction.xvii[18]
Thus, in resolving the issues raised by private respondent
in the Court of Appeals, the appellate court had to make a
factual inquiry, among others, on the nature and terms of
the contracts among the different parties, the relationship of
the different parties with one another and with respect to
the vessels involved in the case, how the proceeds of the
loans were used, and the correct dates when the maritime
and mortgage liens were constituted on the vessels. The
determination of these facts is crucial as it will resolve
whether the amount advanced by respondent CBC is in the
nature of a maritime lien and if so, whether the lien is
superior to the mortgage lien of petitioners. If the appellate
court, in the exercise of its review power, finds that the
amount advanced by CBC was used for the repair of the
vessels, then a mortgage lien was indubitably established
over the shipping vessels. Moreover, a determination of the
dates when the respective liens of the parties were
constituted over the vessels will answer the question as to
which lien is preferred over the other. In short, in order to
address fully the issues raised by the parties in their
pleadings, the appellate court necessarily had to make
factual findings.
Verily, the issues raised by private respondent in the
(7) a)
appellate court were cognizable by the said court, the
issues being mixed questions of fact and law. Respondent
court was therefore acting within its jurisdiction when it
promulgated its questioned decision.
The next issue brought up by petitioners is whether or not
private respondent CBCs claim for US$242,225.00 is in the
nature of a maritime lien. It is the contention of petitioners
that (t)he Court of Appeals gravely erred in law in holding(1)
that private respondent CBCs claim under its Standby
Letter of Credit No. 79/4174 is a maritime lien, and that said
maritime lien is preferred over the mortgage lien of (2)
petitioners PNB/NIDC on the foreclosed vessel M/V Asean
Liberty.xviii[19]
(3)
The applicable law on the matter is Presidential Decree No.
1521, otherwise known as the Ship Mortgage Decree of
1978. Sections 17 and 21 of the said Presidential Decree
provides as follows:
Sec. 17. Preferred Maritime Liens, Priorities, Other Liens
(a) Upon the sale of any mortgaged vessel in any extra-
judicial sale or by order of a district court of the Philippines
in any suit in rem in admiralty for the enforcement of a
preferred mortgage lien thereon, all pre-existing claims on
the vessel, including any possessory common-law lien of
which a lienor is deprived under the provisions of Section
16 of this Decree, shall be held terminated and shall
thereafter attach, in like amount and in accordance with the
priorities established herein to the proceeds of the sale. The
preferred mortgage lien shall have priority over all claims
against the vessel, except the following claims in the order
stated: (1) expenses and fees allowed and costs taxed by
the court and taxes due to the government; (2) crews
wages; (3) general average; (4) salvage; including contract
salvage; (5) maritime liens arising prior in time to the
recording of the preferred mortgage; and (6) damages
arising out of tort; and (7) preferred mortgage registered
prior in time.
(b) If the proceeds of the sale should not be sufficient to pay
all creditors included in one number or grade, the residue
shall be divided among them pro rata. All credits not paid,
whether fully or partially shall subsist as ordinary credits
enforceable by personal action against the debtor. The
record of judicial sale or sale by public auction shall be
recorded in the Record of Transfers & Encumbrances of
Vessels in the port of documentation.
Sec. 21. Maritime Lien for Necessaries; persons entitled to
such lien. Any person furnishing repairs, supplies, towage,
use of dry dock or maritime railway, or other necessaries to
any vessel, whether foreign or domestic, upon the order of
the owner, shall have a maritime lien on the vessel, which
may be enforced by suit in rem, and it shall be necessary to
allege or prove that credit was given to the vessel.
Under these provisions, any person furnishing repairs,
supplies, or other necessaries to a vessel on credit will
have a maritime lien on the said vessel. Such maritime lien,
if it arose prior to the recording of a preferred mortgage lien,
shall have priority over the said mortgage lien.
In the instant case, it was Hongkong United Dockyards, Ltd.
which originally possessed a maritime lien over the vessel
M/V Asean Liberty by virtue of its repair of the said vessel
on credit. Under the Contract Agreement dated March 12,
1979 between Hongkong United Dockyards, Ltd. and PISC,
the former, as contractor, obligated itself to repair and
convert the vessel M/V Asean Liberty, which was owned by
PISC. Section 7 of the said Agreement provides as follows:
The Owner will, before the commencement of work, provide
an Irrevocable Documentary Credit for the Contract Price
plus an estimate to cover the cost of extra work. The banks
and wording of the Credit are to be agreed by the
Contractor.
b) Payment will be:
Before departure of vessel from Contractors yard: 20% of
contract price;
60 days from departure of vessel from Contractors yard:
40% of contract price;
90 days from departure of vessel from Contractors yard:
40% of contract price.xix[20]
The foregoing provision of the contract agreement
indubitably shows that credit was given to the vessel M/V
Asean Liberty by Hongkong United Dockyards, Ltd. and as
a result, a maritime lien in favor of Hongkong United
Dockyards, Ltd. was constituted on the said vessel by virtue
of Section 21 of the Ship Mortgage Decree of 1978.
It is the contention of private respondent CBC however, that
it ultimately acquired the maritime lien of Hongkong United
Dockyards, Ltd. over the vessel M/V Asean Liberty. As
shown by the documentary evidence offered by private
respondent CBC, its proof that it acquired said maritime lien
is as follows:
(a) On March 12, 1979, PISC entered into a Contract
Agreement with Hongkong United Dockyards, Ltd., as
contractor, for the repair and conversion of its vessel M/V
Asean Liberty for a contract price of
HK$2,200,000.00xx[21];
(b) On May 28, 1979, the Central Bank of the Philippines
approved PISCs request to open with private respondent
China Banking Corporation a Standby Letter of Credit for
US$545,000.00 in favor of Hongkong United Dockyards,
Ltd. This May 28, 1979 letter stated that the credit for
US$545,000 would be used to cover the partial conversion
cost of the vessel Asean Liberty. On June 20, 1979, the
Central Bank approved the request of PISC to change the
beneficiary of the said Standby Letter of Credit from
Hongkong United Dockyards, Ltd. to Citibankxxi[22];
(c) On June 15, 1979, PISC executed an Application and
Agreement with private respondent CBC for the opening of
a Standby Letter of Credit for US$545,000.00 in favor of
Citibank, N.A., Makati, Metro Manila as beneficiary. The
agreement confirmed that the letter of credit would be used
to guarantee the loan in the amount of US$545,000.00, the
proceeds of which will be used to finance partially the
conversion cost of the vessel MV ASIAN LIBERTYxxii[23];
(d) On September 12, 1979, private respondent CBC issued
an Irrevocable Standby Letter of Credit in favor of Citibank
for any sum or sums not exceeding a total of
US$545,000.00. Per express terms of the Letter of Credit,
its purpose was to guarantee (Citibanks) loan to Philippine
International Shipping Corporation, the proceeds of which
loan, according to accountee, are to finance partially the
conversion cost of the vessel M/V ASIAN LIBERTYxxiii[24];
(e) Pursuant to its loan agreement with Citibank, PISC
executed on September 17, 1979 a promissory note for
US$545,000.00 in favor of Citibank, promising to pay the
latter the principal sum of US$545,000.00 in nine (9)
consecutive semi-annual installments of US$60,555.00
commencing one (1) year from date hereof or on
September 17, 1980 until September 17, 1984xxiv[25];
(f) On March 25, 1983, Citibank sent a letter to private
respondent CBC calling and drawing on CBCs Letter of
Credit No. 79/4174 and certifying that the draft attached
thereto for US$242,225.00 represents the principal balance
due to Citibank as of March 17, 1983 under PISCs
Promissory Note of September 17, 1979xxv[26]. This March
25, 1983 letter likewise indicated that the loan due from
PISC was used to finance partially the conversion cost of
the vessel M/V Asian Liberty;
(g) On March 30, 1983, private respondent CBC instructed
by cable its correspondent, Irving Trust Co., to pay Citibank
US$242,225.00. On the same date, Irving Trust Co.,
advised private respondent CBC by mail that the sum of
US$242,225.00 was debited against CBCs Account No.
8033278269 and remitted to the Citibank Foreign Currency
Deposit Unit, Makatixxvi[27];
From the documentary evidence thus presented, it is clear
that private respondents claim is predicated on the payment
it made to Citibank by virtue of the Irrevocable Letter of
Credit it established in the latters favor. Per express
provisions of the Letter of Credit, the same was established
to guarantee your (Citibank) loan in the principal amount of
US$545,000.00 to Philippine International Shipping
Corporation, the proceeds of which loan, according to
accountee, are to finance partially the conversion cost of
the vessel M/V Asean Liberty.xxvii[28]
In short, private respondent CBC was a guarantor of the
loan extended by Citibank to PISC. It was Citibank, which
advanced the money to PISC. It was only upon the failure
of PISC to fulfill its obligations under its promissory note to
Citibank that private respondent CBC was called upon by
Citibank to exercise its duties under the Standby Letter of
Credit.
It is the holding of the appellate court, however, that private
respondent stepped into the shoes of Hongkong United
Dockyards, Ltd. by legal subrogation and thus acquired the
maritime lien of the latter over the vessel M/V Asean
Liberty. Thus:
It is not disputed that CBCs claim for US$242,225.00 and
US$648,002.54 refer to the repair and conversion of two (2)
of PISCs vessels, namely M/V Asean Liberty and M/V
Asean Mission, undertaken by Hongkong United
Dockyards, Ltd. and the China Shipbuilding Corporation of
Taiwan, respectively, upon the order of the owner, as
deposed by George Lim, the President of the PISC. Such
being the case, maritime liens on the vessels concerned
arose conformably with the aforequoted provision of
Section 21 of P.D. No. 1521. True it is that under the law
the persons entitled to the lien are the Hongkong United
Dockyards, Ltd. and the China Shipbuilding Corporation of
Taiwan, they being the ones who furnished the repair
works. However, since it was CBC who paid off these
lienors, it stepped into the shoes of the latter by
subrogation. This is the prevailing doctrine in American
jurisprudence which holds that: A creditor who advances
money specifically for the purpose of discharging a
maritime lien is subrogated to the lienors rights.
Significantly, the Federal Maritime Lien Act, like our Ship
Mortgage Decree of 1978, provides that, any person
furnishing repairs, supplies, towage, use of drydock or
marine railway, or other necessaries, to any foreign or
domestic vessel on the order of the owner of such vessel,
or of a person authorized by the owner of such vessel, or of
a person authorized by the owner has a maritime lien on
the vessel which may be enforced by suit in rem. The only
difference is that under the Federal Maritime Lien Act, it is
not necessary to allege or prove that the credit was given to
the vessel. Hence, insofar as the creation of the lien and
the persons entitled to the lien are concerned, American
jurisprudence is highly persuasive. Furthermore, Article
1302 (2) of our Civil Code explicitly provides:
Art. 1302 (2). It is presumed that there is legal subrogation:
(2) When a third person not interested in the obligation
pays with the express or tacit approval of the debtor;
Accordingly, since CBCs payment to the lienors was with
the express consent of the debtor owner of the vessels
repaired, legal subrogation took place in CBCs favor.
Petitioners do not question the abovequoted rationale of the
Court of Appeals. It takes exception however to the
appellate courts finding and conclusion that it was ultimately
private respondent CBC which paid off the maritime lienor
and that the US$545,000.00 advanced by Citibank was
actually paid to the persons who furnished the repairs on
the vessels. On this point, petitioners argue that the entirety
of the documentary evidence of private respondent CBC
does not show that the latter actually paid off the maritime
lienholder for the repair of M/V Asean Liberty as required by
Section 21 of the Ship Mortgage Act of 1978.xxviii[29]
Furthermore, petitioners claim that the respondent court
committed serious error in law when it considered and gave
credence to the written deposition of Mr. George Lim, the
President of PISC, as basis for the said finding considering
that the same had earlier been denied admission by the trial
court.
There is no merit in the contentions of petitioners.
The provisions of our Ship Mortgage Decree of 1978 were
patterned quite closely after the U.S. Ship Mortgage Act of
1920.xxix[30] Significantly, the Federal Maritime Lien Act of
the United States, like our Ship Mortgage Decree of 1978,
provides that any person furnishing repairs, supplies,
towage, use of drydock, or marine railway, or other
necessaries, to any foreign or domestic vessel on the order
of the owner of such vessel, or of a person authorized by
the owner has a maritime lien on the vessel, which may be
enforced by suit in rem.xxx[31] Being of foreign origin, the
provisions of the Ship Mortgage Decree of 1978 may thus
be construed with the aid of foreign jurisprudence from
which they are derived except insofar as they conflict with
existing laws or are inconsistent with local customs and
institutions.
As held by the public respondent Court of Appeals, those
who provide credit to a master of a vessel for the purpose
of discharging a maritime lien also acquire a lien over the
said vessel. Under American jurisprudence, (f)urnishing
money to a master in good faith to obtain repairs or
supplies or to remove liens, in order to forward the voyage
of the vessel, raises a lien just as though the things (for
which) money was obtained to pay for had been furnished
by the lender.xxxi[32] Likewise, (a)dvances to discharge
maritime liens create a lien on the vessel, and one
advancing money to discharge a valid lien gets a lien of
equal dignity with the one discharged.xxxii[33] There is no
reason why these doctrines cannot be given persuasive
application in the instant case considering that they do not
violate or contravene any of our existing laws. Moreover, as
pointed out by the appellate court, these doctrines are in
accord with our provisions on subrogation particularly Art.
1302, paragraph 2 of the New Civil Code which provides
that there is legal subrogation when a third person, not
interested in the fulfillment in the obligation, pays with the
express or tacit approval of the debtor.
Under these doctrines, a person who extends credit for the
purpose of discharging a maritime lien is not entitled to the
said lien where the funds were not furnished to the ship on
the order of the master and there was no evidence that the
money was actually used to pay debts secured by the
lien.xxxiii[34] As applied in the instant case, it becomes
necessary to prove that the credit advanced by Citibank to
PISC was actually utilized for the repair and conversion of
the vessel M/V Asean Liberty. Otherwise, Citibank could not
have acquired the maritime lien of Hongkong United
Dockyards, Ltd. over the vessel M/V Asean Liberty.
On this point, we agree with the position of private
respondent that the question of whether or not the proceeds
of the loans extended by Citibank were used for the repair
and conversion of M/V Asean Liberty is a factual
issuexxxiv[35] which the Court cannot review absent a
showing that it was arbitrarily resolved.xxxv[36]
Contrary to the assertions of petitioners, the records are
replete with documents that show that the proceeds of the
loans were used for the repair and conversion of the vessel
M/V Asean Liberty. Even without the written deposition of
Mr. George Lim, there is still sufficient documentary
evidence in the records supporting the appellate courts
findings. The correspondences between PISC and the
Central Bank, the Application and Agreement, and the
Standby Letter of Credit itself explicitly state that the
proceeds of the loan applied for by PISC are to be used to
finance partially the conversion cost of the vessel M/V
Asean Liberty. Moreover, the March 25, 1983 letter of
Citibank to private respondent CBC drawing on the latters
letter of credit, confirmed that the loan due from PISC was
used to finance partially the conversion cost of the said
vessel.
In the presence of such documentary evidence, which were
admitted without objection from the petitioners, we cannot
say that the Court of Appeals resolved the issue arbitrarily.
The appellate courts finding that the amount sought to be
recovered by petitioner was actually used for the repair and
conversion of the vessel M/V Asean Liberty is based on
substantial evidence.
From the foregoing, it is clear that the amount used for the
repair of the vessel M/V Asean Liberty was advanced by
Citibank and was utilized for the purpose of paying off the
original maritime lienor, Hongkong United Dockyards, Ltd.
As a person not interested in the fulfillment of the obligation
between PISC and Hongkong United Dockyards, Ltd.,
Citibank was subrogated to the rights of Hongkong United
Dockyards, Ltd. as maritime lienor over the vessel, by virtue
of Article 1302, par. 2 of the New Civil Code. By definition,
subrogation is the transfer of all the rights of the creditor to
a third person, who substitutes him in all his rights.xxxvi[37]
Considering that Citibank paid off the debt of PISC to
Hongkong United Dockyards, Ltd. it became the transferee
of all the rights of Hongkong United Dockyards, Ltd. as
against PISC, including the maritime lien over the vessel
M/V Asean Liberty.
Private respondent CBC, as guarantor, was itself
subrogated to all the rights of Citibank as against PISC, the
latters debtor. Article 2067 of the New Civil Code provides
that (t)he guarantor who pays is subrogated by virtue
thereof to all the rights which the creditor had against the
debtor. Private respondent, having paid off the debt of PISC
to Citibank, was therefore, subrogated to all the rights
Citibank had against its debtor PISC. Considering that
Citibank had a maritime lien over the vessel M/V Asean
Liberty, private respondent was likewise subrogated to this
right when it paid off Citibank under the contract of
guarantee.
Having thus established that private respondent CBC
possessed a maritime lien over the vessel M/V Asean
Liberty, the next issue is whether the said maritime lien is
preferred over the mortgage lien of petitioners.
In the case at bench, petitioners mortgage lien arose on
September 25, 1979 when the said mortgage was
registered with the Philippine Coast Guard
Headquarters.xxxvii[38] As such, in order for the maritime
lien of private respondent CBC to be preferred over the
mortgage lien of petitioners, the same must have arisen
prior to the recording of the mortgage on September 25,
1979.
On this point, petitioners argue that inasmuch as the
Standby Letter of Credit was in the nature of a guarantee,
the right of private respondent CBC to claim or to collect the
maritime lien arose only at the time CBC actually paid off
the said lien to Citibank on March 30, 1983. Otherwise
stated, it is the contention of petitioners that private
respondent CBCs maritime lien under its Standby Letter of
Credit No. 79/4174 arose only on March 30, 1983 when
CBC actually paid off the outstanding obligation of PISC to
Citibank.xxxviii[39] Considering that its mortgage lien arose
on September 25, 1979, petitioners thus conclude that its
lien is preferred as against private respondent CBCs
maritime lien.
There is no merit in this contention.
As stated by a noted commentator on the subject, a
maritime lien constitutes a present right of property in the
ship, a jus in re, to be afterward enforced in admiralty by
process in rem. From the moment the claim or privilege
attaches, it is inchoate, and when carried into effect by legal
process, by a proceeding in rem, it relates back to the
period when it first attached.xxxix[40]
In the case at bench, the maritime lien over the vessel M/V
Asean Liberty arose or was constituted at the time
Hongkong United Drydocks, Ltd. made repairs on the said
vessel on credit. As such, as early as March 12, 1979, the
date of the contract for the repair and conversion of M/V
Asean Liberty, a maritime lien had already attached to the
said vessel. When Citibank advanced the amount of
US$242,225.00 for the purpose of paying off PISCs debt to
Hongkong United Dockyards, Ltd., it acquired the existing
maritime lien over the vessel. When private respondent
honored its contract of guarantee with Citibank on March
30, 1983, it likewise acquired by subrogation the maritime
lien that was already existing over the vessel M/V Asean
Liberty. Thus, when private respondent CBC chose to
exercise its right to the maritime lien during the proceedings
in the trial court, it was actually enforcing a privilege that
attached to the ship as early as March 12, 1979.

The maritime lien of private respondent CBC thus arose

prior in time to the recording of petitioners mortgage on
September 25, 1979. As such, the said maritime lien has
priority over the said mortgage lien. Pursuant to Section 17
of the Ship Mortgage Decree of 1978, a preferred mortgage
lien shall have priority over all claims against the vessel
except, among others, maritime liens arising prior in time to
the recording of the preferred mortgage. The respondent
court thus committed no reversible error when it ruled that
the maritime lien of private respondent CBC is superior to
the mortgage lien of petitioners.

WHERFORE, in view of the foregoing, the petition is denied

and the decision of the Court of Appeals dated March 21,
1997 in CA-G.R. CV. No. 38131 is hereby AFFIRMED.

SO ORDERED.