PHILIPPINE TRUST COMPANY, PLAINTIFF AND APPELLEE, VS. SMITH NAVIGATION COMPANY, DEFENDANT AND APPELLEE. RAMON L. VERZOSA ET AL., INTERVENORS. EL VARADERO DE MANILA, INTERVENOR A…

This is an appeal taken by the intervenor
El Varadero de Manila from the judgment of the Court of First Instance
of Manila, the dispositive part of which reads as follows:

“For the foregoing considerations, judgment
is rendered dismissing the complaint in intervention of the Varadero de
Manila. The defendant Smith Navigation Company is ordered to pay to the
plaintiff Philippine Trust Company, as ‘trustee of an express trust’,
the sum of P64,000 Philippine currency, with interest thereon at 12 per
cent per annum from January 3, 1934, until fully paid, plus an
additional sum equivalent to 10 per cent of the above-stated amount for
costs, attorney’s fees, expenses and liquidated damages. As soon as
this judgment becomes final and executory and upon failure of the
defendant to make such payment, the sheriff of the City of Manila is
authorized to proceed in accordance with law to sell the two mortgaged
vessels ‘Ethel Conklin’ and ‘Ethel Edwards’ separately at public
auction, applying the proceeds thereof to the amount of this judgment,
it being understood that the schooner ‘Ethel Conklin’ is subject to the
preferred claim of the crew, intervenors herein, in the sum of
P1,688.50, which claim should be paid with preference to that of the
plaintiff. So ordered.”

As ground for its appeal, the appellant assigns four alleged errors claimed by it to have been committed by the court a quo in its judgment in question, which will be discussed in the course of this decision.

When the case was called for hearing, the parties agreed upon the
existence of the following pertinent facts: That the defendant Smith
Navigation Company, on January 3, 1936, executed a document by virtue
of which it constituted a mortgage on the schooner “Ethel Conklin” and
the motorship “Ethel Edwards”, both of Manila registry, to secure the
payment to the plaintiff Philippine Trust Company of said defendant’s
indebtedness in the sum of P66,000, with interest thereon at 12 per
cent per annum from January 3, 1934, payable monthly on or before the
15th of every month from said date; that the mortgage in question has
been registered in the Bureau of Customs; that it has been stipulated
that in case of violation of any of the terms and conditions of said
mortgage the entire amount unpaid would become due and payable and the
mortgage could be foreclosed; that it has been agreed that in case of
foreclosure of the mortgage the defendant would pay a sum equivalent to
10 per cent of all the sums due and unpaid for costs, attorney’s fees,
expenses and liquidated damages; that of the debt claimed by the
Philippine Trust Company, there remains only the sum of P64,000 plus
interest thereon at 12 per cent per annum due and unpaid from April 16,
1934; that the defendant Smith Navigation Company has failed to pay
interest from April 16, 1934, to date; that the claim of the intervenor
El Varadero de Manila for repairs made on the vessels amounts to
fll,486.78 as evidenced by the complaint in intervention; that such
claim has not been registered either in the Bureau of Customs or in any
other place; that before causing such repairs to be made the defendant
Smith Navigation Company did not inform the plaintiff Philippine Trust
Company thereof; that said repairs were made on the vessels “Ethel
Conklin” and “Ethel Edwards” from the month of June, 1933, to June,
1934 (Exhibits 1-V to 30-V of the Varadero de Manila).

In addition to the above-stated facts, on the existence of which
the parties have stipulated, the following have been established at the
trial, some by a preponderance of evidence and others without
discussion, to wit:

The intervenors Ramon L. Verzosa et al., who were the officer and
crew of the motorship “Ethel Conklin”, rendered services as such from
March 29, 1934, up to 2 o’clock in the afternoon of May 13th of said
year when said motorship was tied up. The vessel in question thereafter
made no other voyage because the intervenor-appelkint El Varadero de
Manila was made to repair it by order of the Bureau of Customs (Exhibit
3). From the month of May, 1934, the two vessels did not navigate
again. The repairs for which El Varadero de Manila claims payment were
made and finished in the month of June, 1933.

Wilson G. Smith, general manager of the defandant-appellee Smith
Navigation Company, testifying as a witness, stated, among other
things, that the mortgage creditor Philippine Trust Company had not
been notified in writing of the repairs in question, as required by
Exhibit A, because the current practice is that when the repairs are
made by order of the Bureau of Customs said notice is not served, and
because the witness had had a verbal agreement with Nolting and Ford,
then president and vice-president, respectively, of the Philippine
Trust Company, relative to said repairs.

Edward V. Ford, testifying in rebuttal, denied that Nolting and he
had had such verbal agreement, Stating that he came to know of said
repairs only when they had already been carried out, that is, some time
prior to the filing of the action in the present case.

The parties recognize the preferred right of Ramon L. Verzosa et
al. to collect their salaries earned during the last voyage of the
schooner “Ethel Conklin”, for services rendered by them as officer and
crew thereof.

Article 2 of the Code of Commerce provides that commercial
transactions, be they performed by merchants or not, whether they are
specified in this Code or not shall be governed by the provisions
contained in the same; in the absence of such provisions, by the
commercial customs generally observed in each place; and in the absence
of both, by those of the common law; and that commercial transactions
shall be considered those enumerated in said Code and any others of a
similar character.

Both the mortgage of vessels and the repair thereof are commercial
transactions, being enumerated in said Code (art. 580, Code of
Commerce). Subsection 8 of the above-cited article 580 of the Code of
Commerce provides that the credits arising from the repair and
equipment of the vessel during its last voyage shall have preference,
but that in order that said credits may enjoy such preference, they
must appear by contracts recorded in the registry of vessels. The
repairs made by the intervenor El Varadero de Manila on the vessels
under consideration, and the supply of materials employed by it in said
repairs were not effected by virtue of a contract recorded in the
registry of vessels. Therefore said intervenor cannot invoke in its
favor the privilege granted by said article. No commercial custom
generally observed in the place as governing a verbal contract on the
repair of vessels has been cited to this court. Neither is this court
aware of the existence of any such custom. This deficiency compels this
court to resort to the common law, which in this case is the Civil
Code, supplementary to the Code of Commerce (Decisions of the Supreme
Court of Spain of April 28, 1899, December 29, 1898, and February 16,
1897; Urrutia & Co. vs. Baco River Plantation Co., 26 Phil., 632;
Compania General de T’abacos vs. Molina, 5 Phil., 142, 146). “Where the
law’ and commercial customs afford no express or analogous rule to
decide the controversy, the civil law is applied, but not only the
Civil Code but also the special laws and the customs that complete it.”
(Vivante, Derecho Mercantil, volume I, page 92, paragraph 7.)

Article 1922, subsection 1, of the Civil Code provides that credits
for the repair of personal property in the possession of the debtor are
.preferred to the extent of the value of the same. The vessels under
consideration, for the repair of which the intervenor El Varadero de
Manila claims payment from the defendant Smith Navigation Company, are
pre-eminently personal property (article 585, Code of Commerce;
Philippine Refining Co. vs. Jarque, 61 Phil., 230). Under the provision
of article 1926 of the Civil Code,, credits which enjoy preference with
respect to certain personal property exclude all others to the extent
of the value of the property to which such preference relates.

In the present case there exist a credit for the repair of vessels
sold at public auction and another one secured by a chattel mortgage
constituted thereon. Credits Secured by chattel mortgage are not
included among those that enjoy preference under the above-cited
article 1922 of the Civil Code. Consequently, the mortgage credit of
the plaintiff Philippine Trust Company cannot concur with the credit
for repairs of the intervenor El Varadero de Manila, with respect to
the proceeds of the sale at public auction of the repaired vessels
“Ethel Conklin” and “Ethel Edwards” which were in the possession of the
defendant Smith Navigation Company. (International Banking Corporation
vs. Corrales, 10 Phil., 435; Yek Tong Lin Fire & Marine Insurance
Co. vs. Yusingco, p. 473, ante),

Therefore, by applying the provisions of article 1922, subsection
1, in connection with those of article 1926, of the Civil Code, the
intervenor El Varadero de Manila is entitled to reimbursement for the
cost of the repairs of the vessels “Ethel Conklin” and “Ethel Edwards”
and of the materials employed therein, from the proceeds of the sale at
public auction of the vessels in question, with preference to the
mortgage credit of the plaintiff Philippine Trust Company.

As to the question whether or not by reason of the failure of the
defendant Smith Navigation Company to notify the plaintiff Philippine
Trust Company of the necessity of making the repairs and of the order
given by it to the intervenor El Varadero de Manila to make such
repairs on the vessels in question, El Varadero de Manila is not
entitled to collect the value of said repairs with preference to the
credit secured by the mortgage constituted on said vessels, the
agreement entered into between the defendant Sniith Navigation Company
and the plaintiff Philippine Trust Company, whereby said defendant
binds itself to notify said plaintiff of the necessity of making any
repair on said vessels, is not binding on said intervenor El Varadero
de Manila on the ground that it was not a party to said contract,
notwithstanding the fact that the chattel mortgage wherein said
obligation was made to appear is recorded in the registry of transfers
and liens of vessels of the Bureau of Customs. In the case of Pacific
Commercial Co. vs. Webb and Falcon (51 Phil., 745), this court has laid
down the doctrine that “the repair man is not a party to the terms and
provisions in a chattel mortrgage to the effect that the mortgagor
cannot encumber the auto for subsequent repairs without the written
consent of the mortgagee, and in the absence of personal knowledge of
their existence, he is not legally bound by such provisions in the
chattel mortgage.”

In the case under consideration, it does not appear that the
intervenor El Varadero de Manila had personal knowledge of the
existence of such stipulation in the instrument of mortgage of the
vessels “Ethel Conklin” and “Ethel Edwards” before the defendant and
mortgagor Smith Navigation Company ordered their repair and said
intervenor accepted said order.

Although the above-cited case involves an automobile, the mortgage
of which is governed by Act No. 1508, otherwise known as the Chattel
Mortgage Law, and not a vessel, the mortgage of which is governed by
section 1171 of the Revised Administrative Code (Arroyo vs. Yu de Sane,
54 Phil,, 511), the question at issue is the same and, therefore, the
same principle is applicable.

Under the above-cited provisions of law and doctrine of this court,
the intervenor El Varadero de Manila is not barred from collecting the
amount of the repairs made by it with preference to the mortgage credit
of the plaintiff Philippine Trust Company. (Article 1922, subsection 1,
in connection with article 1926, of the Civil Code.)

For the foregoing considerations, this court is of the opinion and
so holds: (1) That the credits claimed by the intervenor El Varadero de
Manila, for repairs made on the vessels “Ethel Conklin” and “Ethel
Edwards” during their last voyage, which do not appear in a written
instrument recorded in the registry of vessels, are governed by the
provisions of article 1922, subsection 1, in connection with those of
article 1926, of the Civil Code, and enjoy preference over the credits
secured by mortgage constituted on said vessels in favor of the
plaintiff Philippine Trust Company; (2) that as the intervenor El
Varadero de Manila was not a party to the contract of mortgage of
vessels entered into between the plaintiff Philippine Trust Company and
the defendant Smith Navigation Company, imposing the condition that the
mortgagee must be notified of any repair to be made on the mortgaged
vessels, said intervenor is not subject to said condition,
notwithstanding the fact that the instrument of mortgage is recorded in
the Bureau of Customs.

Wherefore, the appealed judgment is reversed in so far as it
dismisses the complaint in intervention of El Varadero de Manila, and
it is ordered that from the proceeds of the sale at public auction of
the two vessels “Ethel Conklin” and “Ethel Edwards” the sheriff of the
City of Manila, after having satisfied the claim of the other
intervenors Ramon L. Verzosa et al., who constitute the officer and
crew of the schooner “Ethel Conklin”, pay first to said intervenor El
Varadero de Manila the sum of P11,486.78, with legal interest thereon
from the date of the filing of the complaint in intervention, until
fully paid, and lastly pay the plaintiff Philippine Trust Company in
the manner provided for in the appealed judgment, with costs to the
plaintiff-appellee. So ordered.

Avancena, C. J., Abad Santos, Imperial, and Diaz, JJ., concur.

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CONCEPCION, J.,

I regret to have to dissent from the majority opinion. I think the
question of preference of credit involved in this case should be
decided in accordance with the provisions of the Code of Commerce, as
it has to do with the preference between a credit secured by the
mortgage of a vessel recorded in the registry of the Bureau of Customs,
on the one hand, and a credit for repairs made on the same vessel, on
the other, all of which transactions are commercial in character. In
order to determine which of the two creditors has a preferred right to
collect its credit, we have to resort to article 580, subsection 8, of
the Code of Commerce. The repairs made on the vessel not having been
made to appear by contract recorded in the registry of vessels, the
intervenor El Varadero de Manila cannot invoke a preferred right to
collect its credit for repairs; and taking into consideration the fact
that the plaintiff has the mortgage of the vessel recorded in its
favor, the right of preference belongs to it. Neither article 1922,
subsection 1, nor article 1926 of the Civil Code is applicable, because
the provisions of said Code merely serve as supplementary law in the
absence of express provisions of the Code of Commerce governing a
particular case. Inasmuch as the case under consideration is covered by
the provisions of article 580 of the Code of Commerce,, the question of
preference raised herein can not be decided under the provisions of the
Civil Code.

The doctrine laid down in the case of International Banking
Corporation vs. Corrales (10 Phil., 435), is not pertinent to the
present case because the question now under discussion, that the
contract for repairs of the vessel was not made to appear in writing
and was not registered in the Bureau of Customs, was not raised therein.

I am of the opinion that the credit of the intervenor El Varadero
de Manila is merely a personal one with no right of preference over the
mortgage credit of the plaintiff. For this reason, I believe the
appealed judgment should be affirmed.