G.R. No. 128661. August 08, 2000
PHILIPPINE NATIONAL BANK/NATIONAL INVESTMENT DEVELOPMENT CORPORATION, PETITIONERS, VS. THE COURT OF APPEALS, CHINA BANKING CORPORATION, RESPONDENTS.
GONZAGA-REYES, J.:
Rules of Court, petitioners seek the reversal of the 21 March 1997
decision[1] of the Court of Appeals in C.A.-G.R. No. CV-38131. The assailed decision set aside the Order[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:
- 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;- 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- 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.[3]
As security for these guaranty accommodations, PISC executed in favor of petitioners the following mortgage documents:
- 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;- 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- Supplemental Chattel Mortgage constituted on M/V “Asean
Greatness” and recorded with the Philippine Coast Guard Headquarters on
February 3, 1981.[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.[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.[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.[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 CBC’s Account No. 8033278269
and remitted to Citibank.[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
Sheriff’s 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.[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 case[10] against petitioners for the annulment of the foreclosure and auction sale of its vessels and damages.
As accurately narrated in the trial court’s 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-à-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., Lloyd’s, 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 Lloyd’s 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 Lloyd’s 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 Lloyd’s claim is for ‘the service of herein intervenor
Lloyd’s 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 Lloyd’s claim as not being
preferred maritime liens and in any event inferior in nature.Intervenor China Bank’s 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 Bank’s 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, Lloyd’s 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 Lloyd’s
and China Bank resulted in an August 9, 1991 Pre-Trial Order which set
forth-‘A. NATURE OF THE CASE
Claimant-intervenor Lloyd’s 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 Lloyd’s 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, andii. Whether or not assuming recoverability thereon as
being in the nature of maritime liens, such recovery may be allowed in
relation with PNB’s 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.’”[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:
- 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.- 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
Appellee’s 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.[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 CBC’s
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,xxx
SO ORDERED.”[13]
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 CBC’s 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 CBC’S 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 Consul[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,[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.xxx xxx xxx
(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.[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.[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 CBC’s complaint-in-intervention. It is,
therefore, indubitable that mixed questions of fact and of law are
involved over which this Court has jurisdiction.”[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 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 CBC’s 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 that private respondent CBC’s
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
petitioners PNB/NIDC on the foreclosed vessel M/V Asean Liberty.”[19]
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) crew’s 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:
“(7) a) 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:
(1) Before departure of vessel from Contractor’s yard: 20% of contract price;
(2) 60 days from departure of vessel from Contractors yard: 40% of contract price;
(3) 90 days from departure of vessel from Contractors yard: 40% of contract price.”[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$2,200,000.00[21];(b) On May 28, 1979, the Central Bank of the Philippines approved
PISC’s 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 Citibank[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 LIBERTY’”[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 (Citibank’s) 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 LIBERTY’”[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, 1984[25];(f) On March 25, 1983, Citibank sent a letter to private respondent
CBC calling and drawing on CBC’s 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 PISC’s
Promissory Note of September 17, 1979[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 CBC’s Account No.
8033278269 and remitted to the Citibank Foreign Currency Deposit Unit,
Makati[27];
From the documentary evidence thus presented, it is clear that
private respondent’s claim is predicated on the payment it made to
Citibank by virtue of the Irrevocable Letter of Credit it established in
the latter’s 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.”[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 CBC’s claim for US$242,225.00 and
US$648,002.54 refer to the repair and conversion of two (2) of PISC’s
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 lienor’s
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:
xxx xxx xxx
(2) When a third person not interested in the obligation pays with the express or tacit approval of the debtor;
xxx xxx xxx.’
Accordingly, since CBC’s payment to the lienors was with the
express consent of the debtor owner of the vessels repaired, legal
subrogation took place in CBC’s favor.”
Petitioners do not question the abovequoted rationale of the Court of
Appeals. It takes exception however to the appellate court’s 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.[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.[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.”[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.”[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.”[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.”[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 issue[35] which the Court cannot review absent a showing that it was arbitrarily resolved.[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
court’s 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 latter’s 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 court’s 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.[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 latter’s 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.[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 CBC’s 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.[39]
Considering that its mortgage lien arose on September 25, 1979,
petitioners thus conclude that its lien is preferred as against private
respondent CBC’s 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.”[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 PISC’s 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.
Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.
[1] Annex “A” of Petition;
Rollo, pp. 30-53. Per Justice Salvador J. Valdez, Jr, with Justices
Jaime M. Lantin and Corona Ibay-Somera, concurring.
[2] Penned by Judge Salvador S. Tensuan, C.A. Rollo, pp. 26-32.
[3] Petition, pp. 3-4; Rollo, pp. 10-11.
[4] Petition, p. 4; Rollo, p. 11.
[5] Memorandum for Private Respondent, p. 2; Rollo, p.139
[6] ibid.
[7] Memorandum for Private Respondent, pp. 2-3; Rollo, pp. 139-140.
[8] Rollo, p. 140.
[9] Petition, p. 4; Rollo, p. 11.
[10] Docketed as Civil Case No. 4068.
[11] Rollo, pp. 32-35.
[12] Petition, p. 7; Rollo, p. 14.
[13] Rollo, pp. 52-53.
[14] UDK-9748, 1 March 1990.
[15] Subject:
Guidelines to be Observed in Appeals to the Court of Appeals and to the
Supreme Court , dated March 9, 1990, based on the Resolution of the
Court En Banc in UDK-9748 (Anacleto Murillo vs. Rodolfo Consul), March
1, 1990.
[16] Roman Catholic Archbishop of Manila vs. Court of Appeals, 258 SCRA 186.
[17] Please also see Section 17 (1) of the Judiciary Act of 1948.
[18] Rollo, p. 45.
[19] Petition, p. 12; Rollo, p. 19.
[20] China Banking Corporation’s Record on Appeal, p. 187.
[21] Ibid, pp. 184-188.
[22] Ibid, pp. 189-191.
[23] Ibid, pp. 192-193.
[24] Ibid, p. 194.
[25] Ibid, pp. 195-196.
[26] Ibid, pp. 197-200.
[27] Ibid, p. 201.
[28] Ibid. p. 194.
[29] Petition, p. 17; Rollo, p. 24.
[30] Hernandez, Eduardo F. and Penasales, Antero A., Philippine Admiralty and Maritime Law, 1987 Edition, p. 133.
[31] 70 Am. Jur. 2nd §552, p. 800.
[32] 70 Am. Jur. 2nd § 561, p. 807.
[33] Ibid.
[34] Ibid.
[35] K.K. Shell Sekiyu Osaka Hatsubaisho vs. Court of Appeals, 188 SCRA 145.
[36] Tan Chun Suy vs. Court of Appeals, 212 SCRA 713.
[37] Chemphil Export and Import Corporation vs. Court of Appeals, 251 SCRA 257.
[38] Petition, p. 4; Rollo, p. 11.
[39] Petition, p. 19; Rollo, p. 26.
[40] Agbayani, Aguedo
F., Commentaries and Jurisprudence on the Commercial Laws of the
Philippines, 1993 ed., Volume IV, pp. 699-700 citing 70 Am Jur 2nd, 472.