ABOITIZ SHIPPING CORPORATION, petitioner, vs. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD., respondent.

Sycip, Salazar, Hernandez & Gamaitan Law Office for petitioner. Napoleon Rama collaborating counsel for petitioner. Dollete, Blanco, Ejercito & Associates for private respondent. MELO, J.: This refers to a petition for review which seeks to annul and set aside the decision of the Court of Appeals dated June 21, 1991, in CA G.R. SP No. 24918. The appellate court dismissed the petition for certiorari filed by herein petitioner, Aboitiz Shipping Corporation, questioning the Order of April 30, 1991 issued by the Regional Trial Court of the National Capital Judicial Region (Manila, Branch IV) in its Civil Case No. 144425 granting private respondent's prayer for execution for the full amount of the judgment award. The trial court in so doing swept aside petitioner's opposition which was grounded on the real and hypothecary nature of petitioner's liability as ship owner. The application of this established principle of maritime law would necessarily result in a probable reduction of the amount to be recovered by private respondent, since it would have to share with a number of other parties similarly situated in the insurance proceeds on the vessel that sank. The basic facts are not disputed. Petitioner is a corporation organized and operating under Philippine laws and engaged in the business of maritime trade as a carrier. As such, it owned and operated the ill-fated "M/V P. ABOITIZ," a common carrier which sank on a voyage from Hongkong to the Philippines on October 31, 1980. Private respondent General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), on the other hand, is a foreign insurance company pursuing its remedies as a subrogee of several cargo consignees whose respective cargo sank with the said vessel and for which it has priorly paid. The incident of said vessel's sinking gave rise to the filing of suits for recovery of lost cargo either by the shippers, their successor-in-interest, or the cargo insurers like GAFLAC as subrogees. The sinking was initially investigated by the Board of Marine Inquiry (BMI Case No. 466, December 26, 1984), which found that such sinking was due toforce majeure and that subject vessel, at the time of the sinking was seaworthy. This administrative finding notwithstanding, the trial court in said Civil Case No. 144425 found against the carrier on the basis that the loss subject matter therein did not occur as a result of force majeure. Thus, in said case, plaintiff GAFLAC was allowed to prove, and. was later awarded, its claim. This decision in favor of GAFLAC was elevated all the way up to this Court in G.R. No. 89757 (Aboitiz v. Court of Appeals, 188 SCRA 387 [1990]), with Aboitiz, like its ill-fated vessel, encountering rough sailing. The attempted execution of the judgment award in said case in the amount of P1,072,611.20 plus legal interest has given rise to the instant petition. On the other hand, other cases have resulted in findings upholding the conclusion of the BMI that the vessel was seaworthy at the time of the sinking, and that such sinking was due to force majeure. One such ruling was likewise elevated to this Court in G.R. No. 100373, Country Bankers

Insurance Corporation v. Court of Appeals, et al., August 28, 1991 and was sustained. Part of the task resting upon this Court, therefore, is to reconcile the resulting apparent contrary findings in cases originating out of a single set of facts. It is in this factual milieu that the instant petition seeks a pronouncement as to the applicability of the doctrine of limited liability on the totality of the claims vis a vis the losses brought about by the sinking of the vessel M/V P. ABOITIZ, as based on the real and hypothecary nature of maritime law. This is an issue which begs to be resolved considering that a number of suits alleged in the petition number about 110 (p. 10 and pp. 175 to 183, Rollo) still pend and whose resolution shall well-nigh result in more confusion than presently attends the instant case. In support of the instant petition, the following arguments are submitted by the petitioner: 1. The Limited Liability Rule warrants immediate stay of execution of judgment to prevent impairment of other creditors' shares; 2. The finding of unseaworthiness of a vessel is not necessarily attributable to the shipowner; and 3 The principle of "Law of the Case" is not applicable to the present petition. (pp. 2-26, Rollo.) On the other hand, private respondent opposes the foregoing contentions, arguing that: 1. There is no limited liability to speak of or applicable real and hypothecary rule under Article 587, 590, and 837 of the Code of Commerce in the face of the facts found by the lower court (Civil Case No. 144425), upheld by the Appellate Court (CA G.R. No. 10609), and affirmed in toto by the Supreme Court in G.R. No. 89757 which cited G.R. No. 88159 as the Law of the Case; and 2. Under the doctrine of the Law of the Case, cases involving the same incident, parties similarly situated and the same issues litigated should be decided in conformity therewith following the maximstare decisis et non quieta movere. (pp. 225 to 279, Rollo.) Before proceeding to the main bone of contention, it is important to determine first whether or not the Resolution of this Court in G.R. No. 88159, Aboitiz Shipping, Corporation vs. The Honorable Court of Appeals and Allied Guaranty Insurance Company, Inc., dated November 13, 1989 effectively bars and precludes the instant petition as argued by respondent GAFLAC. An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280 to 282, Rollo) shows that the same settles two principal matters, first of which is that the doctrine of primary administrative jurisdiction is not applicable therein; and second is that a limitation of liability in said case would render inefficacious the extraordinary diligence required by law of common carriers. It should be pointed out, however, that the limited liability discussed in said case is not the same one now in issue at bar, but an altogether different aspect. The limited liability settled in G.R. No. 88159 is that which attaches to cargo by virtue of stipulations in the Bill of Lading, popularly

known as package limitation clauses, which in that case was contained in Section 8 of the Bill of Lading and which limited the carrier's liability to US$500.00 for the cargo whose value was therein sought to be recovered. Said resolution did not tackle the matter of the Limited Liability Rule arising out of the real and hypothecary nature of maritime law, which was not raised therein, and which is the principal bone of contention in this case. While the matters threshed out in G.R. No. 88159, particularly those dealing with the issues on primary administrative jurisdiction and the package liability limitation provided in the Bill of Lading are now settled and should no longer be touched, the instant case raises a completely different issue. It appears, therefore, that the resolution in G.R. 88159 adverted to has no bearing other than factual to the instant case. This brings us to the primary question herein which is whether or not respondent court erred in granting execution of the full judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the application of the limited liability enunciated under the appropriate articles of the Code of Commerce. The articles may be ancient, but they are timeless and have remained to be good law. Collaterally, determination of the question of whether execution of judgments which have become final and executory may be stayed is also an issue. We shall tackle the latter issue first. This Court has always been consistent in its stand that the very purpose for its existence is to see to the accomplishment of the ends of justice. Consistent with this view, a number of decisions have originated herefrom, the tenor of which is that no procedural consideration is sacrosanct if such shall result in the subverting of substantial justice. The right to an execution after finality of a decision is certainly no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1985]), this Court ruled that: . . . It is a truism that every court has the power "to control, in the furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a case before it, in every manner appertaining thereto. It has also been said that: . . . every court having jurisdiction to render a particular judgment has inherent power to enforce it, and to exercise equitable control over such enforcement. The court has authority to inquire whether its judgment has been executed, and will remove obstructions to the enforcement thereof. Such authority extends not only to such orders and such writs as may be necessary to carry out the judgment into effect and render it binding and operative, but also to such orders and such writs as may be necessary to prevent an improper enforcement of the judgment. If a judgment is sought to be perverted and made a medium of consummating a wrong the court on proper application can prevent it. (at p. 359)

and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257 [1987]), this Court found that: The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order its execution, admits of certain exceptions as in cases of special and exceptional nature where it becomes the imperative in the higher interest of justice to direct the suspension of its execution (Vecine v. Geronimo, 59 OG 579); whenever it is necessary to accomplish the aims of justice (Pascual v Tan, 85 Phil. 164); or when certain facts and circumstances transpired after the judgment became final which would render the execution of the judgment unjust (Cabrias v. Adil, 135 SCRA 354). (at p. 201) We now come to the determination of the principal issue as to whether the Limited Liability Rule arising out of the real and hypothecary nature of maritime law should apply in this and related cases. We rule in the affirmative. In deciding the instant case below, the Court of Appeals took refuge in this Court's decision in G.R. No. 89757 upholding private respondent's claims in that particular case, which the Court of Appeals took to mean that this Court has "considered, passed upon and resolved Aboitiz's contention that all claims for the losses should first be determined before GAFLAC's judgment may be satisfied," and that such ruling "in effect necessarily negated the application of the limited liability principle" (p. 175, Rollo). Such conclusion is not accurate. The decision in G.R. No. 89757 considered only the circumstances peculiar to that particular case, and was not meant to traverse the larger picture herein brought to fore, the circumstances of which heretofore were not relevant. We must stress that the matter of the Limited Liability Rule as discussed was never in issue in all prior cases, including those before the RTCs and the Court of Appeals. As discussed earlier, the "limited liability" in issue before the trial courts referred to the package limitation clauses in the bills of lading and not the limited liability doctrine arising from the real and hypothecary nature of maritime trade. The latter rule was never made a matter of defense in any of the cases a quo, as properly it could not have been made so since it was not relevant in said cases. The only time it could come into play is when any of the cases involving the mishap were to be executed, as in this case. Then, and only then, could the matter have been raised, as it has now been brought before the Court. The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection with losses related to maritime contracts is confined to the vessel, which is hypothecated for such obligations or which stands as the guaranty for their settlement. It has its origin by reason of the conditions and risks attending maritime trade in its earliest years when such trade was replete with innumerable and unknown hazards since vessels had to go through largely uncharted waters to ply their trade. It was designed to offset such adverse conditions and to encourage people and entities to venture into maritime commerce despite the risks and the prohibitive cost of shipbuilding. Thus, the liability of the vessel owner and agent arising from the operation of such vessel were confined to the vessel itself, its equipment, freight, and insurance, if any,

which limitation served to induce capitalists into effectively wagering their resources against the consideration of the large profits attainable in the trade. It might be noteworthy to add in passing that despite the modernization of the shipping industry and the development of high-technology safety devices designed to reduce the risks therein, the limitation has not only persisted, but is even practically absolute in well-developed maritime countries such as the United States and England where it covers almost all maritime casualties. Philippine maritime law is of Anglo-American extraction, and is governed by adherence to both international maritime conventions and generally accepted practices relative to maritime trade and travel. This is highlighted by the following excerpts on the limited liability of vessel owners and/or agents; Sec. 183. The liability of the owner of any vessel, whether American or foreign, for any embezzlement, loss, or destruction by any person of any person or any property, goods, or merchandise shipped or put on board such vessel, or for any loss, damage, or forfeiture, done, occasioned, or incurred, without the privity or knowledge of such owner or owners shall not exceed the amount or value of the interest of such owner in such vessel, and her freight then pending. (Section 183 of the US Federal Limitation of Liability Act). and 1. The owner of a sea-going ship may limit his liability in accordance with Article 3 of this Convention in respect of claims arising, from any of the following occurrences, unless the occurrence giving rise to the claim resulted from the actual fault or privity of the owner; (a) loss of life of, or personal injury to, any person being carried in the ship, and loss of, or damage to, any property on board the ship. (b) loss of life of, or personal injury to, any other person, whether on land or on water, loss of or damage to any other property or infringement of any rights caused by the act, neglect or default the owner is responsible for, or any person not on board the ship for whose act, neglect or default the owner is responsible: Provided, however, that in regard to the act, neglect or default of this last class of person, the owner shall only be entitled to limit his liability when the act, neglect or default is one which occurs in the navigation or the management of the ship or in the loading, carriage or discharge of its cargo or in the embarkation, carriage or disembarkation of its passengers. (c) any obligation or liability imposed by any law relating to the removal of wreck and arising from or in connection with the raising, removal or destruction of any ship which is sunk, stranded or abandoned (including anything which may be on board such ship) and any obligation or liability arising out of damage caused to harbor works, basins and

navigable waterways. (Section 1, Article I of the Brussels International Convention of 1957) In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very statute from which it originates. The Limited Liability Rule in the Philippines is taken up in Book III of the Code of Commerce, particularly in Articles 587, 590, and 837, hereunder quoted in toto: Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may have earned during the voyage. Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the captain referred to in Art. 587. Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him. Art. 837. The civil liability incurred by shipowners in the case prescribed in this section (on collisions), shall be understood as limited to the value of the vessel with all its appurtenances and freightage served during the voyage. (Emphasis supplied) Taken together with related articles, the foregoing cover only liability for injuries to third parties (Art. 587), acts of the captain (Art. 590) and collisions (Art. 837). In view of the foregoing, this Court shall not take the application of such limited liability rule, which is a matter of near absolute application in other jurisdictions, so lightly as to merely "imply" its inapplicability, because as could be seen, the reasons for its being are still apparently much in existence and highly regarded. We now come to its applicability in the instant case. In the few instances when the matter was considered by this Court, we have been consistent in this jurisdiction in holding that the only time the Limited Liability Rule does not apply is when there is an actual finding of negligence on the part of the vessel owner or agent (Yango v. Laserna, 73 Phil. 330 [1941]; Manila Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs of Amparo delos Santos v. Court of Appeals, 186 SCRA 649 [1967]). The pivotal question, thus, is whether there is a finding of such negligence on the part of the owner in the instant case. A careful reading of the decision rendered by the trial court in Civil Case No. 144425 (pp. 27-33, Rollo) as well as the entirety of the records in the instant case will show that there has been no actual finding of negligence on the part of petitioner. In its Decision, the trial court merely held that: . . . Considering the foregoing reasons, the Court holds that the vessel M/V "Aboitiz" and its cargo were not lost due to fortuitous event or force majeure." (p. 32, Rollo) The same is true of the decision of this Court in G.R. No. 89757 (pp. 7186, Rollo) affirming the decision of the Court of Appeals in CA-G.R. CV No. 10609 (pp. 34-50, Rollo) since both decisions did not make any new and

additional finding of fact. Both merely affirmed the factual findings of the trial court, adding that the cause of the sinking of the vessel was because of unseaworthiness due to the failure of the crew and the master to exercise extraordinary diligence. Indeed, there appears to have been no evidence presented sufficient to form a conclusion that petitioner shipowner itself was negligent, and no tribunal, including this Court will add or subtract to such evidence to justify a conclusion to the contrary. The qualified nature of the meaning of "unseaworthiness," under the peculiar circumstances of this case is underscored by the fact that in the Country Banker's case, supra, arising from the same sinking, the Court sustained the decision of the Court of Appeals that the sinking of the M/V P. Aboitiz was due to force majeure. On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on petitioner's lap, absent a factual basis for such a conclusion. The unseaworthiness found in some cases where the same has been ruled to exist is directly attributable to the vessel's crew and captain, more so on the part of the latter since Article 612 of the Code of Commerce provides that among the inherent duties of a captain is to examine a vessel before sailing and to comply with the laws of navigation. Such a construction would also put matters to rest relative to the decision of the Board of Marine Inquiry. While the conclusion therein exonerating the captain and crew of the vessel was not sustained for lack of basis, the finding therein contained to the effect that the vessel was seaworthy deserves merit. Despite appearances, it is not totally incompatible with the findings of the trial court and the Court of Appeals, whose finding of "unseaworthiness" clearly did not pertain to the structural condition of the vessel which is the basis of the BMI's findings, but to the condition it was in at the time of the sinking, which condition was a result of the acts of the captain and the crew. The rights of a vessel owner or agent under the Limited Liability Rule are akin to those of the rights of shareholders to limited liability under our corporation law. Both are privileges granted by statute, and while not absolute, must be swept aside only in the established existence of the most compelling of reasons. In the absence of such reasons, this Court chooses to exercise prudence and shall not sweep such rights aside on mere whim or surmise, for even in the existence of cause to do so, such incursion is definitely punitive in nature and must never be taken lightly. More to the point, the rights of parties to claim against an agent or owner of a vessel may be compared to those of creditors against an insolvent corporation whose assets are not enough to satisfy the totality of claims as against it. While each individual creditor may, and in fact shall, be allowed to prove the actual amounts of their respective claims, this does not mean that they shall all be allowed to recover fully thus favoring those who filed and proved their claims sooner to the prejudice of those who come later. In such an instance, such creditors too would not also be able to gain access to the assets of the individual shareholders, but must limit their recovery to what is left in the name of the corporation. Thus, in the case of Lipana v. Development Bank of Rizal earlier cited, We held that: In the instant case, the stay of execution of judgment is warranted by the fact that the respondent bank was placed under receivership. To execute the judgment would unduly

deplete the assets of respondent bank to the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank v. Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or preference over another by an attachment, execution or otherwise. (at p. 261). In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are limited in their recovery to the remaining value of accessible assets. In the case of an insolvent corporation, these are the residual assets of the corporation left over from its operations. In the case of a lost vessel, these are the insurance proceeds and pending freightage for the particular voyage. In the instant case, there is, therefore, a need to collate all claims preparatory to their satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant can be given precedence over the others by the simple expedience of having filed or completed its action earlier than the rest. Thus, execution of judgment in earlier completed cases, even those already final and executory, must be stayed pending completion of all cases occasioned by the subject sinking. Then and only then can all such claims be simultaneously settled, either completely or pro-rata should the insurance proceeds and freightage be not enough to satisfy all claims. Finally, the Court notes that petitioner has provided this Court with a list of all pending cases (pp. 175 to 183,Rollo), together with the corresponding claims and the pro-rated share of each. We likewise note that some of these cases are still with the Court of Appeals, and some still with the trial courts and which probably are still undergoing trial. It would not, therefore, be entirely correct to preclude the trial courts from making their own findings of fact in those cases and deciding the same by allotting shares for these claims, some of which, after all, might not prevail, depending on the evidence presented in each. We, therefore, rule that the pro-rated share of each claim can only be found after all the cases shall have been decided. In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending freightage should now be deposited in trust. Moreover, petitioner should institute the necessary limitation and distribution action before the proper admiralty court within 15 days from the finality of this decision, and thereafter deposit with it the proceeds from the insurance company and pending freightage in order to safeguard the same pending final resolution of all incidents, for final pro-rating and settlement thereof. ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the Regional Trial Court of Manila, Branch IV dated April 30, 1991 and the Court of Appeals dated June 21, 1991 are hereby set aside. The trial court is hereby directed to desist from proceeding with the execution of the judgment rendered in Civil Case No. 144425 pending determination of the totality of claims recoverable from the petitioner as the owner of the M/V P. Aboitiz. Petitioner is directed to institute the necessary action and to

deposit the proceeds of the insurance of subject vessel as above-described within fifteen (15) days from finality of this decision. The temporary restraining order issued in this case dated August 7, 1991 is hereby made permanent. SO ORDERED. CHUA YEK HONG, petitioner, vs. INTERMEDIATE APPELLATE COURT, MARIANO GUNO, and DOMINADOR OLIT, respondents. Francisco D. Estrada for petitioner. Purita Hontanosas-Cortes for private respondents. MELENCIO-HERRERA, J.: In this Petition for Review on certiorari petitioner seeks to set aside the Decision of respondent Appellate Court in AC G.R. No. 01375 entitled "Chua Yek Hong vs. Mariano Guno, et al.," promulgated on 3 April 1986, reversing the Trial Court and relieving private respondents (defendants below) of any liability for damages for loss of cargo. The basic facts are not disputed: Petitioner is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while private respondents are the owners of the vessel, "M/V Luzviminda I," a common carrier engaged in coastwise trade from the different ports of Oriental Mindoro to the Port of Manila. In October 1977, petitioner loaded 1,000 sacks of copra, valued at P101,227.40, on board the vessel "M/V Luzviminda I" for shipment from Puerta Galera, Oriental Mindoro, to Manila. Said cargo, however, did not reach Manila because somewhere between Cape Santiago and Calatagan, Batangas, the vessel capsized and sank with all its cargo. On 30 March 1979, petitioner instituted before the then Court of First Instance of Oriental Mindoro, a Complaint for damages based on breach of contract of carriage against private respondents (Civil Case No. R-3205). In their Answer, private respondents averred that even assuming that the alleged cargo was truly loaded aboard their vessel, their liability had been extinguished by reason of the total loss of said vessel. On 17 May 1983, the Trial Court rendered its Decision, the dispositive portion of which follows: WHEREFORE, in view of the foregoing considerations, the court believes and so holds that the preponderance of evidence militates in favor of the plaintiff and against the defendants by ordering the latter, jointly and severally, to pay the plaintiff the sum of P101,227.40 representing the value of the cargo belonging to the plaintiff which was lost while in the custody of the defendants; P65,550.00 representing miscellaneous expenses of plaintiff on said lost cargo; attorney's fees in the amount of P5,000.00, and to pay the costs of suit. (p. 30, Rollo). On appeal, respondent Appellate Court ruled to the contrary when it applied Article 587 of the Code of Commerce and the doctrine in Yangco vs. Lasema (73 Phil. 330 [1941]) and held that private respondents' liability, as ship owners, for the loss of the cargo is merely co-extensive

with their interest in the vessel such that a total loss thereof results in its extinction. The decretal portion of that Decision 1 reads: IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision appealed from is hereby REVERSED, and another one entered dismissing the complaint against defendantsappellants and absolving them from any and all liabilities arising from the loss of 1,000 sacks of copra belonging to plaintiff-appellee. Costs against appellee. (p. 19, Rollo). Unsuccessful in his Motion for Reconsideration of the aforesaid Decision, petitioner has availed of the present recourse. The basic issue for resolution is whether or not respondent Appellate Court erred in applying the doctrine of limited liability under Article 587 of the Code of Commerce as expounded in Yangco vs. Laserna, supra. Article 587 of the Code of Commerce provides: Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all the equipments and the freight it may have earned during the voyage. The term "ship agent" as used in the foregoing provision is broad enough to include the ship owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256 [1921]). Pursuant to said provision, therefore, both the ship owner and ship agent are civilly and directly liable for the indemnities in favor of third persons, which may arise from the conduct of the captain in the care of goods transported, as well as for the safety of passengers transported Yangco vs. Laserna, supra; Manila Steamship Co., Inc. vs. Abdulhaman et al., 100 Phil. 32 [1956]). However, under the same Article, this direct liability is moderated and limited by the ship agent's or ship owner's right of abandonment of the vessel and earned freight. This expresses the universal principle of limited liability under maritime law. The most fundamental effect of abandonment is the cessation of the responsibility of the ship agent/owner (Switzerland General Insurance Co., Ltd. vs. Ramirez, L-48264, February 21, 1980, 96 SCRA 297). It has thus been held that by necessary implication, the ship agent's or ship owner's liability is confined to that which he is entitled as of right to abandon the vessel with all her equipment and the freight it may have earned during the voyage," and "to the insurance thereof if any" (Yangco vs. Lasema, supra). In other words, the ship owner's or agent's liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. "No vessel, no liability" expresses in a nutshell the limited liability rule. The total destruction of the vessel extinguishes maritime liens as there is no longer any res to which it can attach (Govt. Insular Maritime Co. vs. The Insular Maritime, 45 Phil. 805, 807 [1924]). As this Court held: If the ship owner or agent may in any way be held civilly liable at all for injury to or death of passengers arising from the negligence of the captain in cases of collisions or

shipwrecks, his liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. (Yangco vs. Laserna, et al., supra). The rationale therefor has been explained as follows: The real and hypothecary nature of the liability of the ship owner or agent embodied in the provisions of the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against these adverse conditions and to encourage ship building and maritime commerce, it was deemed necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance, if any, so that if the ship owner or agent abandoned the ship, equipment, and freight, his liability was extinguished. (Abueg vs. San Diego, 77 Phil. 730 [1946]) 0 Without the principle of limited liability, a ship owner and investor in maritime commerce would run the risk of being ruined by the bad faith or negligence of his captain, and the apprehension of this would be fatal to the interest of navigation." Yangco vs. Lasema, supra). 0 As evidence of this real nature of the maritime law we have (1) the limitation of the liability of the agents to the actual value of the vessel and the freight money, and (2) the right to retain the cargo and the embargo and detention of the vessel even in cases where the ordinary civil law would not allow more than a personal action against the debtor or person liable. It will be observed that these rights are correlative, and naturally so, because if the agent can exempt himself from liability by abandoning the vessel and freight money, thus avoiding the possibility of risking his whole fortune in the business, it is also just that his maritime creditor may for any reason attach the vessel itself to secure his claim without waiting for a settlement of his rights by a final judgment, even to the prejudice of a third person. (Phil. Shipping Co. vs. Vergara, 6 Phil. 284 [1906]). The limited liability rule, however, is not without exceptions, namely: (1) where the injury or death to a passenger is due either to the fault of the ship owner, or to the concurring negligence of the ship owner and the captain (Manila Steamship Co., Inc. vs. Abdulhaman supra); (2) where the vessel is insured; and (3) in workmen's compensation claims Abueg vs. San Diego, supra). In this case, there is nothing in the records to show that the loss of the cargo was due to the fault of the private respondent as shipowners, or to their concurrent negligence with the captain of the vessel.

What about the provisions of the Civil Code on common carriers? Considering the "real and hypothecary nature" of liability under maritime law, these provisions would not have any effect on the principle of limited liability for ship owners or ship agents. As was expounded by this Court: In arriving at this conclusion, the fact is not ignored that the illfated, S.S. Negros, as a vessel engaged in interisland trade, is a common carrier, and that the relationship between the petitioner and the passengers who died in the mishap rests on a contract of carriage. But assuming that petitioner is liable for a breach of contract of carriage, the exclusively 'real and hypothecary nature of maritime law operates to limit such liability to the value of the vessel, or to the insurance thereon, if any. In the instant case it does not appear that the vessel was insured. (Yangco vs. Laserila, et al., supra). Moreover, Article 1766 of the Civil Code provides: Art. 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. In other words, the primary law is the Civil Code (Arts. 17321766) and in default thereof, the Code of Commerce and other special laws are applied. Since the Civil Code contains no provisions regulating liability of ship owners or agents in the event of total loss or destruction of the vessel, it is the provisions of the Code of Commerce, more particularly Article 587, that govern in this case. In sum, it will have to be held that since the ship agent's or ship owner's liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction (Yangco vs. Laserna, supra), and none of the exceptions to the rule on limited liability being present, the liability of private respondents for the loss of the cargo of copra must be deemed to have been extinguished. There is no showing that the vessel was insured in this case. WHEREFORE, the judgment sought to be reviewed is hereby AFFIRMED. No costs. SO ORDERED. LITONJUA SHIPPING COMPANY INC., petitioner vs. NATIONAL SEAMEN BOARD and GREGORIO P. CANDONGO respondents. Ferrer, Valte, Mariano, Sangalang & Villanueva for petitioner. Estratonico S. Anano for private respondent. FELICIANO, J.: In this Petition for Certiorari, petitioner Litonjua Shipping Company, Inc. ("Lintonjua") seeks to annul and set aside a decision dated, 31 May 1979 of the National Seamen Board ("NSB") in NSB Case No. 1331-77 affirming the decision dated 17 February 1977 of the NSB hearing officer which adjudged petitioner Litonjua liable to private respondent for violation of the latter's contract of employment and which ordered petitioner to pay damages.

Petitioner Litonjua is the duly appointed local crewing Managing Office of the Fairwind Shipping Corporation ('Fairwind). The M/V Dufton Bay is an ocean-going vessel of foreign registry owned by the R.D. Mullion Ship Broking Agency Ltd. ("Mullion"). On 11 September 1976, while the Dufton Bay was in the port of Cebu and while under charter by Fairwind, the vessel's master contracted the services of, among others, private respondent Gregorio Candongo to serve as Third Engineer for a period of twelve (12) months with a monthly wage of US$500.00. This agreement was executed before the Cebu Area Manning Unit of the NSB. Thereafter, private respondent boarded the vessel. On 28 December 1976, before expiration of his contract, private respondent was required to disembark at Port Kelang, Malaysia, and was returned to the Philippines on 5 January 1977. The cause of the discharge was described in his Seaman's Book as 'by owner's arrange". 1 Shortly after returning to the Philippines, private respondent filed a complaint before public respondent NSB, which complaint was docketed as NSB-1331-77, for violation of contract, against Mullion as the shipping company and petitioner Litonjua as agent of the shipowner and of the charterer of the vessel. At the initial hearing, the NSB hearing officer held a conference with the parties, at which conference petitioner Litonjua was represented by one of its supercargos, Edmond Cruz. Edmond Cruz asked, in writing, that the hearing be postponed for a month upon the ground that the employee of Litonjua in charge of the case was out of town. The hearing officer denied this request and then declared petitioner Litonjua in default. At the hearing, private respondent testified that when he was recruited by the Captain of the Dufton Bay, the latter was accompanied to the NSB Cebu Area Manning Unit by two (2) supercargos sent by petitioner Litonjua to Cebu, and that the two (2) supercargos Edmond Cruz and Renato Litonjua assisted private respondent in the procurement of his National Investigation and Security Agency (NISA) clearance. Messrs. Cruz and Litonjua were also present during private respondent's interview by Captain Ho King Yiu of the Dufton Bay. On 17 February 1977, the hearing officer of the NSB rendered a judgment by default, 2 the dispositive portion of which read: Wherefore, premises considered, judgment is hereby rendered ordering the respondents R.D. Mullion Shipbrokers Co., Ltd., and Litonjua Shipping Co., Inc., jointly and solidarily to pay the complainant the sum of four thousand six hundred fifty seven dollars and sixty three cents ($4,657.63) or its equivalent in the Phil. currency within 10 days from receipt of the copy of this Decision the payment of which to be coursed through the then NSB. The above conclusion was rationalized in the following terms: From the evidence on record it clearly appears that there was no sufficient or valid cause for the respondents to terminate the services of complainant prior to 17 September 1977, which is the expiry date of the contract. For this reason the respondents have violated the conditions of the contract of employment which is a

sufficient justification for this Board to render award in favor of the complainant of the unpaid salaries due the latter as damages corresponding to the unexpired portion of the contract including the accrued leave pay computed on the basis of five [51 days pay for every month of service based at $500.00 monthly salary. Complainant's wages account further show that he has an undrawn wage amounting to US$13.19 to be paid by the respondents Philippine agency together with his accrued leave pay. 3 Petitioner Litonjua filed a motion for reconsideration of the hearing officer's decision; the motion was denied. Petitioner next filed an "Appeal and/or Motion for Reconsideration of the Default Judgment dated 9 August 1977" with the central office of the NSB. NSB then suspended its hearing officer's decision and lifted the order of default against petitioner Litonjua, thereby allowing the latter to adduce evidence in its own behalf The NSB hearing officer, on 26 April 1978, made the following findings: While it appears that in the preparation of the employment papers of the complainant, what was indicated therein was R.D. Mullion Co. (HK) Ltd. referring to Exhibit "B" (Standard Format of a Service Agreement) and Exhibit "C" (Affidavit of Undertaking), as thecompany whom Captain Ho King Yiu, the Master of the vessel Dufton Bay, was representing to be the shipowner, the fact remains that at the time of the recruitment of the complainant, as duly verified by the National Seamen Board, Cebu Area Manning Unit, the Litonjua Shipping Company was the authorized agent of the vessel's charterer, the Fairwind Shipping Corporation, and that in the recruitment process, the Litonjua Shipping Company through its supercargos in the persons of Edmund Cruz and Renato Litonjua, had knowledge thereof and in fact assisted in the interviews conducted by the Master of the crew applicants as admitted by Renato Litonjua including the acts of facilitating the crew's NISA clearances as testified to by complainant. Moreover, the participation of the Litonjua Shipping Corporation in the recruitment of complainant, together with the other crewmembers, in Cebu in September 1976 can be traced to the contents of the letter of April 5, 1976 by the Fairwind Shipping Limited, thru its Director David H.L. Wu addressed to the National Seamen Board, copy of which is on file with Contracts and Licensing Division, quote: This is to certify that Messrs. Litonjua Shipping, Inc. is duly appointed local crewing Managing Office to attend on our Crew requirements as well as attend to our ship's requirements when in Philippine ports. We further authorized Litonjua Shipping Co., Inc. to act as local representative who can sue and be sued, and to bind and sign contracts for our behalf. 4 The NSB then lifted the suspension of the hearing officer's 17 February 1977 decision.

Petitioner Litonjua once more moved for reconsideration. On 31 May 1979, public respondent NSB rendered a decision 5 which affirmed its hearing offices decision of 17 February 1977 and which read in part as follows: It is clear that respondent Litonjua Shipping Co., Inc. is the authorized Philippine agent of Fairwind Shipping Corporation, charterer of the vessel 'Dufton Bay, wherein complainant, served as 3rd Engineer from 17 September until disembarkation on December 28, 1976. It is also clear from the complainant's wages account bearing the heading 'Fairwind Shipping Corporation', signed by the Master of the vessel that the Philippine agency referred to herein directed to pay the said withdrawn wages of $13.19 is no other than Litonjua Shipping Company, Inc. From this observation, it can be reasonably inferred that the master of the vessel acted for and in behalf of Fairwind Shipping Corporation who had the obligation to pay the salary of the complainant. It necessarily follows that Fairwind Shipping Corporation is the employer of said complainant. Moreover, it had been established by complainant that Litonjua Shipping Company, Inc., had knowledge of and participated, through its employee, in the recruitment of herein complainant. xxx xxx xxx In view of the foregoing, and pursuant to Art. 3 of the New Labor Code of the Philippines, which provides that, 'The state shall afford protection to labor . . .' as well as the provisions of Art. 4 thereof, that 'all doubts in the implementation and interpretation of the provisions of the Code, including its implementing rules and regulations, shall be resolved in favor of labor', it is our conclusion, that the decision dated February 17, 1977, is based on evidence formally offered and presented during the hearing and that there was no grave abuse of discretion committed by the hearing officer in finding respondent Litonjua Shipping Company, Inc., liable to complainant . (Emphasis supplied) In the instant Petition for Certiorari, petitioner Litonjua assails the decision of public respondent NSB declaring the charterer Fairwind as employer of private respondent, and for whose liability petitioner was made responsible, as constituting a grave abuse of discretion amounting to lack of jurisdiction. The principal if not the sole issue to be resolved here is whether or not the charterer Fairwind was properly regarded as the employer of private respondent Candongo. Petitioner Litonjua makes two (2) principal submissions in support of its contention, to wit: 1) As a general rule, admiralty law as embodied in the Philippine Code of Commerce fastens liability for payment of the crew's wages upon the ship owner, and not the charterer; and 2) The evidence of record is grossly inadequate to shift such liability from the shipowner to the petitioner. 6

Petitioner Litonjua contends that the shipowner, not the charterer, was the employer of private respondent; and that liability for damages cannot be imposed upon petitioner which was a mere agent of the charterer. It is insisted that private respondent's contract of employment and affidavit of undertaking clearly showed that the party with whom he had contracted was none other than Mullion, the shipowner, represented by the ship's master. 7Petitioner also argues that its supercargos merely assisted Captain Ho King Yiu of the Dufton Bay in being private respondent as Third Engineer. Petitioner also points to the circumstance that the discharge and the repatriation of private respondent was specified in his Seaman's Book as having been "by owner's arrange." Petitioner Litonjua thus argues that being the agent of the charterer and not of the shipowner, it accordingly should not have been held liable on the contract of employment of private respondent. We are not persuaded by petitioner's argument. We believe that there are two (2) grounds upon which petitioner Litonjua may be held liable to the private respondent on the contract of employment. The first basis is the charter party which existed between Mullion, the shipowner, and Fairwind, the charterer. In modern maritime law and usage, there are three (3) distinguishable types of charter parties: (a) the "bareboat" or "demise" charter; (b) the "time" charter; and (c) the "voyage" or "trip" charter. A bareboat or demise charter is a demise of a vessel, much as a lease of an unfurnished house is a demise of real property. The shipowner turns over possession of his vessel to the charterer, who then undertakes to provide a crew and victuals and supplies and fuel for her during the term of the charter. The shipowner is not normally required by the terms of a demise charter to provide a crew, and so the charterer gets the "bare boat", i.e., without a crew. 8 Sometimes, of course, the demise charter might provide that the shipowner is to furnish a master and crew to man the vessel under the charterer's direction, such that the master and crew provided by the shipowner become the agents and servants or employees of the charterer, and the charterer (and not the owner) through the agency of the master, has possession and control of the vessel during the charter period. A time charter, upon the other hand, like a demise charter, is a contract for the use of a vessel for a specified period of time or for the duration of one or more specified voyages. In this case, however, the owner of a time-chartered vessel (unlike the owner of a vessel under a demise or bare-boat charter), retains possession and control through the master and crew who remain his employees. What the time charterer acquires is the right to utilize the carrying capacity and facilities of the vessel and to designate her destinations during the term of the charter. A voyage charter, or trip charter, is simply a contract of affreightment, that is, a contract for the carriage of goods, from one or more ports of loading to one or more ports of unloading, on one or on a series of voyages. In a voyage charter, master and crew remain in the employ of the owner of the vessel. 9 It is well settled that in a demise or bare boat charter, the charterer is treated as owner pro hac vice of the vessel, the charterer assuming in large measure the customary rights and liabilities of the shipowner in relation to third persons who have dealt with him or with the vessel. 10 In such case, the Master of the vessel is the agent of the charterer and not of

the shipowner. 11 The charterer or owner pro hac vice, and not the general owner of the vessel, is held liable for the expenses of the voyage including the wages of the seamen. 12 It is important to note that petitioner Litonjua did not place into the record of this case a copy of the charter party covering the M/V Dufton Bay. We must assume that petitioner Litonjua was aware of the nature of a bareboat or demise charter and that if petitioner did not see fit to include in the record a copy of the charter party, which had been entered into by its principal, it was because the charter party and the provisions thereof were not supportive of the position adopted by petitioner Litonjua in the present case, a position diametrically opposed to the legal consequence of a bareboat charter. 13 Treating Fairwind as owner pro hac vice, petitioner Litonjua having failed to show that it was not such, we believe and so hold that petitioner Litonjua, as Philippine agent of the charterer, may be held liable on the contract of employment between the ship captain and the private respondent. There is a second and ethically more compelling basis for holding petitioner Litonjua liable on the contract of employment of private respondent. The charterer of the vessel, Fairwind, clearly benefitted from the employment of private respondent as Third Engineer of the Dufton Bay, along with the ten (10) other Filipino crewmembers recruited by Captain Ho in Cebu at the same occasion. 14 If private respondent had not agreed to serve as such Third Engineer, the ship would not have been able to proceed with its voyage. The equitable consequence of this benefit to the charterer is, moreover, reinforced by convergence of other circumstances of which the Court must take account. There is the circumstance that only the charterer, through the petitioner, was present in the Philippines. Secondly, the scope of authority or the responsibility of petitioner Litonjua was not clearly delimited. Petitioner as noted, took the position that its commission was limited to taking care of vessels owned by Fairwind. But the documentary authorization read into the record of this case does not make that clear at all. The words "our ships" may well be read to refer both to vessels registered in the name of Fairwind and vessels owned by others but chartered by Fairwind. Indeed the commercial, operating requirements of a vessel for crew members and for supplies and provisions have no relationship to the technical characterization of the vessel as owned by or as merely chartered by Fairwind. In any case, it is not clear from the authorization given by Fairwind to petitioner Litonjua that vessels chartered by Fairwind (and owned by some other companies) were not to be taken care of by petitioner Litonjua should such vessels put into a Philippine port. The statement of account which the Dufton Bay'sMaster had signed and which pertained to the salary of private respondent had referred to a Philippine agency which would take care of disbursing or paying such account. 'there is no question that Philippine agency was the Philippine agent of the charterer Fairwind. Moreover, there is also no question that petitioner Litonjua did assist the Master of the vessel in locating and recruiting private respondent as Third Engineer of the vessel as well as ten (10) other Filipino seamen as crew members. In so doing, petitioner Litonjua certainly in effect represented that it was taking care of the crewing and other requirements of a vessel chartered by its principal, Fairwind. 15

Last, but certainly not least, there is the circumstance that extreme hardship would result for the private respondent if petitioner Litonjua, as Philippine agent of the charterer, is not held liable to private respondent upon the contract of employment. Clearly, the private respondent, and the other Filipino crew members of the vessel, would be defenseless against a breach of their respective contracts. While wages of crew members constitute a maritime lien upon the vessel, private respondent is in no position to enforce that lien. If only because the vessel, being one of foreign registry and not ordinarily doing business in the Philippines or making regular calls on Philippine ports cannot be effectively held to answer for such claims in a Philippine forum. Upon the other hand, it seems quite clear that petitioner Litonjua, should it be held liable to private respondent for the latter's claims, would be better placed to secure reimbursement from its principal Fairwind. In turn, Fairwind would be in an indefinitely better position (than private respondent) to seek and obtain recourse from Mullion, the foreign shipowner, should Fairwind feel entitled to reimbursement of the amounts paid to private respondent through petitioner Litonjua. We conclude that private respondent was properly regarded as an employee of the charterer Fairwind and that petitioner Litonjua may be held to answer to private respondent for the latter's claims as the agent in the Philippines of Fairwind. We think this result, which public respondent reached, far from constituting a grave abuse of discretion, is compelled by equitable principles and by the demands of substantial justice. To hold otherwise would be to leave private respondent (and others who may find themselves in his position) without any effective recourse for the unjust dismissal and for the breach of his contract of employment. WHEREFORE, the Petition for certiorari is DISMISSED and the Decision of the then National Seamen Board dated 31 May 1979 is hereby AFFIRMED. No pronouncement as to costs. SO ORDERED. PHILIPPINE NATIONAL BANK/NATIONAL INVESTMENT DEVELOPMENT CORPORATION,petitioners, vs. THE COURT OF APPEALS, CHINA BANKING CORPORATION, respondents. DECISION 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 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:

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. [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.[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 CBCs 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 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.[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 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,

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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 forthA. 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. [11] After the parties submitted their respective memoranda, the trial court issued on March 4, 1992 an Order dismissing the complaint-inintervention 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 oncertiorari.[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-inintervention, 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,

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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 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 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;

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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. [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 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 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 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) 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: (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 Contractors 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

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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 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 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 (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 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 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, 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 CBCs 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 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.[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: 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.

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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. [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 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. [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

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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 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.[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.[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. NATIONAL DEVELOPMENT COMPANY, petitioner, vs. POLIAND INDUSTRIAL LIMITED,respondent. DECISION TINGA, J.: Before this Court are two Rule 45 consolidated petitions for review seeking the review of the Decision[1] of the Court of Appeals (Fourth Division) in CA-G.R. CV No. 53257, which modified the Decision of the Regional Trial Court, Branch 61, Makati City in Civil Case No. 91-2798. Upon motion of the Development Bank of the Philippines (DBP), the two petitions were consolidated since both assail the same Decision of the Court of Appeals. In G.R. No. 143866, petitioner Poliand Industrial Limited (POLIAND) seeks judgment declaring the National Development Company (NDC) and the DBP solidarily liable in the amount of US$2,315,747.32, representing the maritime lien in favor of POLIAND and the net amount of loans incurred by Galleon Shipping Corporation (GALLEON). It also prays that NDC and DBP be ordered to pay the attorneys fees and costs of the proceedings as solidary debtors. In G.R. No. 143877, petitioner NDC seeks the reversal of the Court of Appeals Decision ordering it to pay POLIAND the amount of One Million Nine Hundred Twenty Thousand Two Hundred Ninety-Eight and 56/100 United States Dollars (US$1,920,298.56), corresponding to the maritime lien in favor of POLIAND, plus interest. ANTECEDENTS The following factual antecedents are matters of record. Between October 1979 and March 1981, Asian Hardwood Limited (Asian Hardwood), a Hong Kong corporation, extended credit accommodations in favor of GALLEON totaling US$3,317,747.32. [2] At that time, GALLEON, a domestic corporation organized in 1977 and headed by its president, Roberto Cuenca, was engaged in the maritime transport of goods. The advances were utilized to augment GALLEONs working capital depleted as a result of the purchase of five new vessels and two secondhand vessels in 1979 and competitiveness of the shipping industry. GALLEON had incurred an obligation in the total amount of US$3,391,084.91 in favor of Asian Hardwood. To finance the acquisition of the vessels, GALLEON obtained loans from Japanese lenders, namely, Taiyo Kobe Bank, Ltd., Mitsui Bank Ltd. and Marubeni Benelux. On October 10, 1979, GALLEON, through Cuenca, and DBP executed a Deed of Undertaking[3] whereby DBP guaranteed the prompt and punctual payment of GALLEONs borrowings from the Japanese lenders. To secure DBPs guarantee under the Deed of Undertaking, GALLEON promised, among others, to secure a first mortgage on the five new vessels and on the second-hand vessels. Thus, GALLEON executed on January 25, 1982 a mortgage contract over five of its vessels namely, M/V Galleon Honor, M/V Galleon Integrity, M/V Galleon Dignity, M/V Galleon Pride, and M/V Galleon Trust in favor of DBP. [4] Meanwhile, on January 21, 1981, President Ferdinand Marcos issued Letter of Instruction (LOI) No. 1155, directing NDC to acquire the entire shareholdings of GALLEON for the amount originally contributed by its shareholders payable in five (5) years without interest cost to the

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government. In the same LOI, DBP was to advance to GALLEON within three years from its effectivity the principal amount and the interest thereon of GALLEONs maturing obligations. On August 10, 1981, GALLEON, represented by its president, Cuenca, and NDC, represented by Minister of Trade Roberto Ongpin, forged a Memorandum of Agreement,[5] whereby NDC and GALLEON agreed to execute a share purchase agreement within sixty days for the transfer of GALLEONs shareholdings. Thereafter, NDC assumed the management and operations of GALLEON although Cuenca remained president until May 9, 1982.[6] Using its own funds, NDC paid Asian Hardwood on January 15, 1982 the amount of US$1,000,000.00 as partial settlement of GALLEONs obligations.[7] On February 10, 1982, LOI No. 1195 was issued directing the foreclosure of the mortgage on the five vessels. For failure of GALLEON to pay its debt despite repeated demands from DBP, the vessels were extrajudicially foreclosed on various dates and acquired by DBP for the total amount of P539,000,000.00. DBP subsequently sold the vessels to NDC for the same amount.[8] On April 22, 1982, the Board of Directors of GALLEON amended the Articles of Incorporation changing the corporate name from Galleon Shipping Corporation to National Galleon Shipping Corporation and increasing the number of directors from seven to nine.[9] Asian Hardwood assigned its rights over the outstanding obligation of GALLEON of US$2,315,747.32 to World Universal Trading and Investment Company, S.A. (World Universal), embodied in a Deed of Assignment executed on April 29, 1989. [10]World Universal, in turn, assigned the credit to petitioner POLIAND sometime in July 1989. [11] On March 24, 1988, then President Aquino issued Administrative Order No. 64, directing NDC and Philippine Export and Foreign Loan Guarantee Corporation (now Trade and Investment Development Corporation of the Philippines) to transfer some of their assets to the National Government, through the Asset Privatization Trust (APT) for disposition. Among those transferred to the APT were the five GALLEON vessels sold at the foreclosure proceedings. On September 24, 1991, POLIAND made written demands on GALLEON, NDC, and DBP for the satisfaction of the outstanding balance in the amount of US$2,315,747.32. [12] For failure to heed the demand, POLIAND instituted a collection suit against NDC, DBP and GALLEON filed on October 10, 1991 with the Regional Trial Court, Branch 61, Makati City. POLIAND claimed that under LOI No. 1155 and the Memorandum of Agreement between GALLEON and NDC, defendants GALLEON, NDC, and DBP were solidarily liable to POLIAND as assignee of the rights of the credit advances/loan accommodations to GALLEON. POLIAND also claimed that it had a preferred maritime lien over the proceeds of the extrajudicial foreclosure sale of GALLEONs vessels mortgaged by NDC to DBP. The complaint prayed for judgment ordering NDC, DBP, and GALLEON to pay POLIAND jointly and severally the balance of the credit advances/loan accommodations in the amount of US$2,315,747.32 and attorneys fees of P100,000.00 plus 20% of the amount recovered. By way of an alternative cause of action, POLIAND sought reimbursement from NDC and DBP for the preferred maritime lien of US$1,193,298.56. [13]

In its Answer with Compulsory Counterclaim and Cross-claim , DBP denied being a party to any of the alleged loan transactions. Accordingly, DBP argued that POLIANDs complaint stated no cause of action against DBP or was barred by the Statute of Frauds because DBP did not sign any memorandum to act as guarantor for the alleged credit advances/loan accommodations in favor of POLIAND. DBP also denied any liability under LOI No. 1155, which it described as immoral and unconstitutional, since it was rescinded by LOI No. 1195. By way of its Affirmative Allegations and Defenses, DBP countered that it was unaware of the maritime lien on the five vessels mortgaged in its favor and that as far as GALLEONs foreign borrowings are concerned, DBP agreed to act as guarantor thereof only under the conditions laid down under the Deed of Undertaking. DBP prayed for the award of actual, moral and exemplary damages and attorneys fees against POLIAND as compulsory counterclaim. In the event that it be adjudged liable for the payment of the loan accommodations and the maritime liens, DBP prayed that its co-defendant GALLEON be ordered to indemnify DBP for the full amount.[14] For its part, NDC denied any participation in the execution of the loan accommodations/credit advances and acquisition of ownership of GALLEON, asserting that it acted only as manager of GALLEON. NDC specifically denied having agreed to the assumption of GALLEONs liabilities because no purchase and sale agreement was executed and the delivery of the required shares of stock of GALLEON did not take place. [15] Upon motion by POLIAND, the trial court dropped GALLEON as a defendant, despite vigorous oppositions from NDC and DBP. At the pre-trial conference on April 29, 1993, the trial court issued an Order limiting the issues to the following: (1) whether or not GALLEON has an outstanding obligation in the amount of US$2,315,747.32; (2) whether or not NDC and DBP may be held solidarily liable therefor; and (3) whether or not there exists a preferred maritime lien of P1,000,000.00 in favor of POLIAND.[16] After trial on the merits, the court a quo rendered a decision on August 9, 1996 in favor of POLIAND. Finding that GALLEONs loan advances/credit accommodations were duly established by the evidence on record, the trial court concluded that under LOI No. 1155, DBP and NDC are liable for those obligations. The trial court also found NDC liable for GALLEONs obligations based on the Memorandum of Agreement dated August 1981 executed between GALLEON and NDC, where it was provided that NDC shall prioritize repayments of GALLEONs valid and subsisting liabilities subject of a meritorious lawsuit or which have been arranged and guaranteed by Cuenca. The trial court was of the opinion that despite the subsequent issuance of LOI No. 1195, NDC and DBPs obligation under LOI No. 1155 subsisted because vested rights of the parties have arisen therefrom. Accordingly, the trial court interpreted LOI No. 1195s directive to limit and protect to mean that DBP and NDC should not assume or incur additional exposure with respect to GALLEON.[17] The trial court dismissed NDCs argument that the Memorandum of Agreement was merely a preliminary agreement, noting that under paragraph nine thereof, the only condition for the payment of GALLEONs subsisting loans by NDC was the determination by the latter that those obligations were incurred in the ordinary course of GALLEONs business. The trial court did not regard the non-execution of the stock purchase

17

agreement as fatal to POLIANDs cause since its non-happening was solely attributable to NDC. The trial court also ruled that POLIAND had preference to the maritime lien over the proceeds of the extrajudicial foreclosure sale of GALLEONs vessels since the loan advances/credit accommodations utilized for the payment of expenses on the vessels were obtained prior to the constitution of the mortgage in favor of DBP. In sum, NDC and DBP were ordered to pay POLIAND as follows: WHEREFORE, premises above considered, judgment is hereby rendered for plaintiff as against defendants DBP and NDC, who are hereby ORDERED as follows: 1. To jointly and severally PAY plaintiff POLIAND the amount of TWO MILLION THREE HUNDRED FIFTEEN THOUSAND SEVEN HUNDRED FORTY SEVEN AND 21/100 [sic] United States Dollars (US$2,315,747.32) computed at the official exchange rate at the time of payment, plus interest at the rate of 12% per annum from 25 September 1991 until fully paid; 2. To PAY the amount of ONE MILLION (P1,000,000.) Pesos, Philippine Currency, for and as attorneys fees; and 3. To PAY the costs of the proceedings. SO ORDERED.[18] Both NDC and DBP appealed the trial courts decision. The Court of Appeals rendered a modified judgment, absolving DBP of any liability in view of POLIANDs failure to clearly prove its action against DBP. The appellate court also discharged NDC of any liability arising from the credit advances/loan obligations obtained by GALLEON on the ground that NDC did not acquire ownership of GALLEON but merely assumed control over its management and operations. However, NDC was held liable to POLIAND for the payment of the preferred maritime lien based on LOI No. 1195 which directed NDC to discharge such maritime liens as may be necessary to allow the foreclosed vessels to engage on the international shipping business, as well as attorneys fees and costs of suit. The dispositive portion of the Decision reads: WHEREFORE, the assailed decision is MODIFIED, in accordance with the foregoing findings, as follows: The case against defendant-appellant DBP is hereby DISMISSED. Defendant-appellant NDC is hereby ordered to pay plaintiff-appellee POLIAND the amount of US$1,920,298.56 plus legal interest effective September 12, 1984. The award of attorneys fees and cost of suit is addressed only against NDC. Costs against defendant-appellant NDC. SO ORDERED.[19] Not satisfied with the modified judgment, both POLIAND and NDC elevated it to this Court via two separate petitions for review on certiorari. In G.R. No. 143866 filed on August 21, 2000, petitioner POLIAND raises the following arguments: RESPONDENT COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERRORS IN ITS QUESTIONED DECISION DATED 29 JUNE 2000 AND DECIDED QUESTIONS CONTRARY TO LAW AND THE APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT MODIFIED THE DECISION DATED 09 AUGUST

1996 RENDERED BY THE REGIONAL TRIAL COURT (BRANCH 61) CONSIDERING THAT: A. CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS, RESPONDENT NDC NOT ONLY TOOK OVER TOTALLY THE MANAGEMENT AND CONTROL OF GALLEON BUT ALSO ASSUMED OWNERSHIP OF GALLEON PURSUANT TO LOI NO. 1155 AND THE MEMORANDUM OF AGREEMENT DATED 10 AUGUST 1981; THUS, RESPONDENT NDCS ACQUISITION OF FULL OWNERSHIP AND CONTROL OF GALLEON CARRIED WITH IT THE ASSUMPTION OF THE LATTERS LIABILITIES TO THIRD PARTIES SUCH AS ASIAN HARDWOOD, PETITIONER POLIANDS PREDECESSOR-IN-INTEREST. B. RESPONDENT COURT OF APPEALS, IN VIOLATION OF THE CONSTITUTION AND THE RULES OF COURT, DISMISSED THE CASE AGAINST RESPONDENT DBP WITHOUT STATING CLEARLY AND DISTINCTLY THE REASONS FOR SUCH A DISMISSAL. C. CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS, PETITIONER POLIAND WAS ABLE TO ESTABLISH THAT RESPONDENT DBP IS SOLIDARILY LIABLE, TOGETHER WITH RESPONDENT NDC, WITH RESPECT TO THE NET TOTAL AMOUNT OWING TO PETITIONER POLIAND. D. RESPONDENT COURT OF APPEALS GRAVELY ERRED ALSO IN NOT FINDING THAT RESPONDENT DBP IS JOINTLY AND SOLIDARILY LIABLE WITH RESPONDENT NDC FOR THE PAYMENT OF MARITIME LIENS PLUS INTEREST PURSUANT TO SECTION 17 OF PRESIDENTIAL DECREEE 1521. [20] On August 25, 2000, NDC filed its petition, docketed as G.R. No. 143877, imputing the following errors to the Court of Appeals: I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER NDC IS LIABLE TO PAY GALLEONS OUTSTANDING OBLIGATION TO RESPONDENT POLIAND IN THE AMOUNT OF US$ 1,920,298.56, TO SATISFY THE PREFERRED MARITIME LIENS OVER THE PROCEEDS OF THE FORECLOSURE SALE OF THE FIVE GALLEON VESSELS. (A) PRESIDENTIAL DECREE NO. 1521 OTHERWISE KNOWN AS THE SHIP MORTGAGE DECREE OF 1978 IS NOT APPLICABLE IN THE CASE AT BAR. (B) PETITIONER NDC DOES NOT HOLD THE PROCEEDS OF THE FORECLOSURE SALE OF THE FIVE (5) GALLEON VESSELS. (C) THE FORECLOSURE SALE OF THE FIVE (5) GALLEON VESSELS EXTINGUISHES ALL CLAIMS AGAINST THE VESSELS. II. THE COURT OF APPEALS ERRED IN AWARDING ATTORNEYS FEES TO RESPONDENT POLIAND.[21] The two petitions were consolidated considering that both petitions assail the same Court of Appeals Decision, although on different fronts. In G.R. No. 143866, POLIAND questions the appellate courts finding that neither NDC nor DBP can be held liable for the loan accommodations to GALLEON. In G.R. No. 143877, NDC asserts that it is not liable to POLIAND for the preferred maritime lien. ISSUES

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The bone of contention revolves around two main issues, namely: (1) Whether NDC or DBP or both are liable to POLIAND on the loan accommodations and credit advances incurred by GALLEON, and (2) Whether POLIAND has a maritime lien enforceable against NDC or DBP or both. RULING of the COURT I. Liability on loan accommodations and credit advances incurred by GALLEON The Court of Appeals reversed the trial courts conclusion that NDC and DBP are both liable to POLIAND for GALLEONs debts on the basis of LOI No. 1155 and the Memorandum of Agreement. It ratiocinated thus: With respect to appellant NDC, resolution of the matters raised in its assignment of errors hinges on whether or not it acquired the shareholdings of GALLEON as directed by LOI 1155; and if in the negative, whether or not it is liable to pay GALLEONs outstanding obligation. The Court answers the issue in the negative. The MOA executed by GALLEON and NDC following the issuance of LOI 1155 called for the execution of a formal share purchase agreement and the transfer of all the shareholdings of seller to Buyer. Since no such execution and consequent transfer of shareholdings took place, NDC did not acquire ownership of GALLEON. It merely assumed actual control over the management and operations of GALLEON in the exercise of which it, on January 15, 1982, after being satisfied of the existence of GALLEONs obligation to ASIAN HARDWOOD, partially paid the latter One Million ($1,000,000.00) US dollars.[22] .... With respect to defendant-appellant DBP, POLIAND failed to clearly prove its cause of action against it. This leaves it unnecessary to dwell on DBPs other assigned errors, including that bearing on its claim for damages and attorneys fees which does not persuade.[23] POLIANDs cause of action against NDC is premised on the theory that when NDC acquired all the shareholdings of GALLEON, the former also assumed the latters liabilities, including the loan advances/credit accommodations obtained by GALLEON from POLIANDs predecessors-ininterest. In G.R. No. 143866, POLIAND argues that NDC acquired ownership of GALLEON pursuant to paragraphs 1 and 2 of LOI No. 1155, which was implemented through the execution of the Memorandum of Agreement. It believes that no conditions were required prior to the assumption by NDC of GALLEONs ownership and subsisting loans. Even assuming that conditions were set, POLIAND opines that the conditions were deemed fulfilled pursuant to Article 1186 of the Civil Code because of NDCs apparent intent to prevent the execution of the share purchase agreement.
[24]

On the other hand, NDC asserts that it could not have acquired GALLEONs equity and, consequently, its liabilities because LOI No. 1155 had been rescinded by LOI No. 1195, and therefore, became inoperative and non-existent. Moreover, NDC, relying on the pronouncements in Philippine Association of Service Exporters, Inc. et al. v. Ruben D. Torres[25] and Parong, et al. v. Minister Enrile ,[26] is of the opinion that LOI No. 1155 does not have the force and effect of law and cannot be a valid source of obligation.[27] NDC denies POLIANDs contention that it

deliberately prevented the execution of the share purchase agreement considering that Cuenca remained GALLEONs president seven months after the signing of the Memorandum of Agreement.[28]NDC contends that the Memorandum of Agreement was a mere preliminary agreement between Cuenca and Ongpin for the intended purchase of GALLEONs equity, prescribing the manner, terms and conditions of said purchase. [29] NDC, not liable under LOI No. 1155 As a general rule, letters of instructions are simply directives of the President of the Philippines, issued in the exercise of his administrative power of control, to heads of departments and/or officers under the executive branch of the government for observance by the officials and/or employees thereof.[30] Being administrative in nature, they do not have the force and effect of a law and, thus, cannot be a valid source of obligation. However, during the period when then President Marcos exercised extraordinary legislative powers, he issued certain decrees, orders and letters of instruction which the Court has declared as having the force and effect of a statute. As pointed out by the Court in Legaspi v. Minister of Finance,[31] paramount considerations compelled the grant of extraordinary legislative power to the President at that time when the nation was beset with threats to public order and the purpose for which the authority was granted was specific to meet the exigencies of that period, thus: True, without loss of time, President Marcos made it clear that there was no military take-over of the government, and that much less was there being established a revolutionary government, even as he declared that said martial law was of a double-barrelled type, unfamiliar to traditional constitutionalists and political scientistsfor two basic and transcendental objectives were intended by it: (1) the quelling of nation-wide subversive activities characteristic not only of a rebellion but of a state of war fanned by a foreign power of a different ideology from ours, and not excluding the stopping effectively of a brewing, if not a strong separatist movement in Mindanao, and (2) the establishment of a New Society by the institution of disciplinary measures designed to eradicate the deep-rooted causes of the rebellion and elevate the standards of living, education and culture of our people, and most of all the social amelioration of the poor and underprivileged in the farms and in the barrios, to the end that hopefully insurgency may not rear its head in this country again. [32] Thus, before a letter of instruction is declared as having the force and effect of a statute, a determination of whether or not it was issued in response to the objectives stated in Legaspi is necessary. Parong, et al. v. Minister Enrile[33] differentiated between LOIs in the nature of mere administrative issuances and those forming part of the law of the land. The following conditions must be established before a letter of instruction may be considered a law: To form part of the law of the land, the decree, order or LOI must be issued by the President in the exercise of his extraordinary power of legislation as contemplated in Section 6 of the 1976 amendments to the Constitution, whenever in his judgment, there exists a grave emergency or threat or imminence thereof, or whenever the interim Batasan Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason that in his judgment requires immediate action. [34]

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Only when issued under any of the two circumstances will a decree, order, or letter be qualified as having the force and effect of law. The decree or instruction should have been issued either when there existed a grave emergency or threat or imminence or when the Legislature failed or was unable to act adequately on the matter. The qualification that there exists a grave emergency or threat or imminence thereof must be interpreted to refer to the prevailing peace and order conditions because the particular purpose the President was authorized to assume legislative powers was to address the deteriorating peace and order situation during the martial law period. There is no doubt that LOI No. 1155 was issued on July 21, 1981 when then President Marcos was vested with extraordinary legislative powers. LOI No. 1155 was specifically directed to DBP, NDC and the Maritime Industry Authority to undertake the following tasks: LETTER OF INSTRUCTIONS NO. 1155 DEVELOPMENT BANK OF THE PHILIPPINES NATIONAL DEVELOPMENT COMPANY MARITIME INDUSTRY AUTHORITY DIRECTING A REHABILITATION PLAN FOR GALLEON SHIPPING CORPORATION .... 1. NDC shall acquire 100% of the shareholdings of Galleon Shipping Corporation from its present owners for the amount of P46.7 million which is the amount originally contributed by the present shareholders, payable after five years with no interest cost. 2. NDC to immediately infuse P30 million into Galleon Shipping Corporation in lieu of is previously approved subscription to Philippine National Lines. In addition, NDC is to provide additional equity to Galleon as may be required. 3. DBP to advance for a period of three years from date hereof both the principal and the interest on Galleon's obligations falling due and to convert such advances into 12% preferred shares in Galleon Shipping Corporation. 4. DBP and NDC to negotiate a restructuring of loans extended by foreign creditors of Galleon. 5. MARINA to provide assistance to Galleon by mandating a rational liner shipping schedule considering existing freight volumes and to immediately negotiate a bilateral agreement with the United States in accordance with UNCTAD resolutions. .... Although LOI No. 1155 was undoubtedly issued at the time when the President exercised legislative powers granted under Amendment No. 6 of the 1973 Constitution, the language and purpose of LOI No. 1155 precludes this Court from declaring that said LOI had the force and effect of law in the absence of any of the conditions set out in Parong. The subject matter of LOI No. 1155 is not connected, directly or remotely, to a grave emergency or threat to the peace and order situation of the nation in particular or to the public interest in general. Nothing in the language of LOI No. 1155 suggests that it was issued to address the security of the nation. Obviously, LOI No. 1155 was in the nature of a mere administrative

issuance directed to NDC, DBP and MARINA to undertake a policy measure, that is, to rehabilitate a private corporation. NDC, not liable under the Corporation Code The Court cannot accept POLIANDs theory that with the effectivity of LOI No. 1155, NDC ipso facto acquired the interests in GALLEON without disregarding applicable statutory requirements governing the acquisition of a corporation. Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation. [35] The merger, however, does not become effective upon the mere agreement of the constituent corporations.[36] As specifically provided under Section 79 [37] of said Code, the merger shall only be effective upon the issuance of a certificate of merger by the Securities and Exchange Commission (SEC), subject to its prior determination that the merger is not inconsistent with the Code or existing laws. Where a party to the merger is a special corporation governed by its own charter, the Code particularly mandates that a favorable recommendation of the appropriate government agency should first be obtained. The issuance of the certificate of merger is crucial because not only does it bear out SECs approval but also marks the moment whereupon the consequences of a merger take place. By operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights, and properties as well as liabilities shall be taken and deemed transferred to and vested in the surviving corporation. [38] The records do not show SEC approval of the merger. POLIAND cannot assert that no conditions were required prior to the assumption by NDC of ownership of GALLEON and its subsisting loans. Compliance with the statutory requirements is a condition precedent to the effective transfer of the shareholdings in GALLEON to NDC. In directing NDC to acquire the shareholdings in GALLEON, the President could not have intended that the parties disregard the requirements of law. In the absence of SEC approval, there was no effective transfer of the shareholdings in GALLEON to NDC. Hence, NDC did not acquire the rights or interests of GALLEON, including its liabilities. DBP, not liable under LOI No. 1155 POLIAND argues that paragraph 3 of LOI No. 1155 unequivocally obliged DBP to advance the obligations of GALLEON. [39]DBP argues that POLIAND has no cause of action against it under LOI No. 1155 which is void and unconstitutional.[40] The Court affirms the appellate courts ruling that POLIAND does not have any cause of action against DBP under LOI No. 1155. Being a mere administrative issuance, LOI No. 1155 cannot be a valid source of obligation because it did not create any privity of contract between DBP and POLIAND or its predecessors-in-interest. At best, the directive in LOI No. 1155 was in the nature of a grant of authority by the President on DBP to enter into certain transactions for the satisfaction of GALLEONs obligations. There is, however, nothing from the records of the case to indicate that DBP had acted as surety or guarantor, or had otherwise accommodated GALLEONs obligations to POLIAND or its predecessors-ininterest.

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II.

Liability on maritime lien On the second issue of whether or not NDC is liable to POLIAND for the payment of maritime lien, the appellate court ruled in the affirmative, to wit: Non-acquisition of ownership of GALLEON notwithstanding, NDC is liable to pay ASIAN HARDWOODs successor-in-interest POLIAND the equivalent of US$1,930,298.56 representing the proceeds of the loan from Asian Hardwood which were spent by GALLEON for ship modification and salaries of crew, to satisfy the preferred maritime liens over the proceeds of the foreclosure sale of the 5 vessels. [41] POLIAND contends that NDC can no longer raise the issue on the latters liability for the payment of the maritime lien considering that upon appeal to the Court of Appeals, NDC did not assign it as an error. [42] Generally, an appellate court may only pass upon errors assigned. However, this rule is not without exceptions. In the following instances, the Court ruled that an appellate court is accorded a broad discretionary power to waive the lack of assignment of errors and consider errors not assigned: (a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter; (b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice; (d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e) Matters not assigned as errors on appeal but closely related to an error assigned; (f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is dependent.[43] It is noteworthy that the question of NDC and DBPs liability on the maritime lien had been raised by POLIAND as an alternative cause of action against NDC and DBP and was passed upon by the trial court. The Court of Appeals, however, reversed the trial courts finding that NDC and DBP are liable to POLIAND for the payment of the credit advances and loan accommodations and instead found NDC to be solely liable on the preferred maritime lien although NDC did not assign it as an error. The records, however, reveal that the issue on the liability on the preferred maritime lien had been properly raised and argued upon before the Court of Appeals not by NDC but by DBP who was also adjudged liable thereon by the trial court. DBPs appellants brief [44] pointed out POLIANDs failure to present convincing evidence to prove its alternative cause of action, which POLIAND disputed in its appellees brief. [45] The issue on the maritime lien is a matter of record having been adequately ventilated before and passed upon by the trial court and the appellate court. Thus, by way of exception, NDC is not precluded from again raising the issue before this Court even if it did not specifically assign the matter as an error

before the Court of Appeals. Besides, this Court is clothed with ample authority to review matters, even if they are not assigned as errors in the appeal if it finds that their consideration is necessary in arriving at a just decision of the case.[46] Articles 578 and 580 of the Code of Commerce, not applicable NDC cites Articles 578[47] and 580[48] of the Code of Commerce to bolster its argument that the foreclosure of the vessels extinguished all claims against the vessels including POLIANDs claim. [49] Article 578 of the Code of Commerce is not relevant to the facts of the instant case because it governs the sale of vessels in a foreign port. Said provision outlines the formal and registration requirements in order that a sale of a vessel on voyage or in a foreign port becomes effective as against third persons. On the other hand, the resolution of the instant case depends on the determination as to which creditor is entitled to the proceeds of the foreclosure sale of the vessels. Clearly, Article 578 of the Code of Commerce is inapplicable. Article 580, while providing for the order of payment of creditors in the event of sale of a vessel, had been repealed by the pertinent provisions of Presidential Decree (P.D.) No. 1521, otherwise known as the Ship Mortgage Decree of 1978. In particular, Article 580 provides that in case of the judicial sale of a vessel for the payment of creditors, the debts shall be satisfied in the order specified therein. On the other hand, Section 17 of P.D. No. 1521[50] also provides that in the judicial or extrajudicial sale of a vessel for the enforcement of a preferred mortgage lien constituted in accordance with Section 2 of P.D. No. 1521, such preferred mortgage lien shall have priority over all pre-existing claims against the vessel, save for those claims enumerated under Section 17, which have preference over the preferred mortgage lien in the order stated therein. Since P.D. No. 1521 is a subsequent legislation and since said law in Section 17 thereof confers on the preferred mortgage lien on the vessel superiority over all other claims, thereby engendering an irreconcilable conflict with the order of preference provided under Article 580 of the Code of Commerce, it follows that the Code of Commerce provision is deemed repealed by the provision of P.D. No. 1521, as the posterior law. [51] P.D. No. 1521 is applicable, not the Civil Code provisions on concurrence/preference of credits Whether or not the order of preference under Section 17, P.D. No. 1521 may be properly applied in the instant case depends on the classification of the mortgage on the GALLEON vessels, that is, if it falls within the ambit of Section 2, P.D. No. 1521, defining how a preferred mortgage is constituted. NDC and DBP both argue that POLIANDs claim cannot prevail over DBPs mortgage credit over the foreclosed vessels because the mortgage executed in favor of DBP pursuant to the October 10, 1979 Deed of Undertaking signed by GALLEON and DBP was an ordinary ship mortgage and not a preferred one, that is, it was not given in connection with the construction, acquisition, purchase or initial operation of the vessels, but for the purpose of guaranteeing GALLEONs foreign borrowings. [52]

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Section 2 of P.D. No. 1521 recognizes the constitution of a mortgage on a vessel, to wit: SECTION 2. Who may Constitute a Ship Mortgage. Any citizen of the Philippines, or any association or corporation organized under the laws of the Philippines, at least sixty per cent of the capital of which is owned by citizens of the Philippines may, for the purpose of financing the construction, acquisition, purchase of vessels or initial operation of vessels, freely constitute a mortgage or any other lien or encumbrance on his or its vessels and its equipment with any bank or other financial institutions, domestic or foreign. If the mortgage on the vessel is constituted for the purpose stated under Section 2, the mortgage obtains a preferred status provided the formal requisites enumerated under Section 4[53] are complied with. Upon enforcement of the preferred mortgage and eventual foreclosure of the vessel, the proceeds of the sale shall be first applied to the claim of the mortgage creditor unless there are superior or preferential liens, as enumerated under Section 17, namely: SECTION 17. Preferred Maritime Lien, 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 in 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; (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 and Encumbrances of Vessels in the port of documentation. (Emphasis supplied.) There is no question that the mortgage executed in favor of DBP is covered by P.D. No. 1521. Contrary to NDCs assertion, the mortgage constituted on GALLEONs vessels in favor of DBP may appropriately be characterized as a preferred mortgage under Section 2, P.D. No. 1521 because GALLEON constituted the same for the purpose of financing the construction, acquisition, purchase of vessels or initial operation of vessels. While it is correct that GALLEON executed the mortgage in consideration of DBPs guarantee of the prompt payment of GALLEONs obligations to the Japanese lenders, DBPs undertaking to pay the Japanese banks was a condition sine qua non to the acquisition of funds for the purchase of the GALLEON vessels. Without DBPs guarantee, the Japanese lenders would

not have provided the funds utilized in the purchase of the GALLEON vessels. The mortgage in favor of DBP was therefore constituted to facilitate the acquisition of funds necessary for the purchase of the vessels. NDC adds that being an ordinary ship mortgage, the Civil Code provisions on concurrence and preference of credits and not P.D. No. 1521 should govern. NDC contends that under Article 2246, in relation to Article 2241 of the Civil Code, the credits guaranteed by a chattel mortgage upon the thing mortgaged shall enjoy preference (with respect to the thing mortgaged), to the exclusion of all others to the extent of the value of the personal property to which the preference exists. [54] Following NDCs theory, DBPs mortgage credit, which is fourth in the order of preference under Article 2241, is superior to POLIANDs claim, which enjoys no preference. NDCs argument does not persuade the Court. The provision of P.D. No. 1521 on the order of preference in the satisfaction of the claims against the vessel is the more applicable statute to the instant case compared to the Civil Code provisions on the concurrence and preference of credit. General legislation must give way to special legislation on the same subject, and generally be so interpreted as to embrace only cases in which the special provisions are not applicable. [55] POLIANDs alternative cause of action for the payment of maritime liens is based on Sections 17 and 21 of P.D. No. 1521. POLIAND also contends that by virtue of the directive in LOI No. 1195 on NDC to discharge maritime liens to allow the vessels to engage in international business, NDC is liable therefor.[56] POLIANDs maritime lien is superior to DBPs mortgage lien Before POLIANDs claim may be classified as superior to the mortgage constituted on the vessel, it must be shown to be one of the enumerated claims which Section 17, P.D. No. 1521 declares as having preferential status in the event of the sale of the vessel. One of such claims enumerated under Section 17, P.D. No. 1521 which is considered to be superior to the preferred mortgage lien is a maritime lien arising prior in time to the recording of the preferred mortgage. Such maritime lien is described under Section 21, P.D. No. 1521, which reads: SECTION 21. Maritime Lien for Necessaries; persons entitled to such lien. Any person furnishing repairs, supplies, towage, use of dry dock or marine railway, or other necessaries to any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a person authorized by 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 the aforequoted provision, the expense must be incurred upon the order of the owner of the vessel or its authorized person and prior to the recording of the ship mortgage. Under the law, it must be established that the credit was extended to the vessel itself.[57] The trial court found that GALLEONs advances obtained from Asian Hardwood were used to cover for the payment of bunker oil/fuel, unused stores and oil, bonded stores, provisions, and repair and docking of the GALLEON vessels.[58] These expenses clearly fall under Section 21, P.D. No. 1521.

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The trial court also found that the advances from Asian Hardwood were spent for ship modification cost and the crews salary and wages. DBP contends that a ship modification cost is omitted under Section 17, P.D. No. 1521, hence, it does not have a status superior to DBPs preferred mortgage lien. As stated in Section 21, P.D. No. 1521, a maritime lien may consist in other necessaries spent for the vessel. The ship modification cost may properly be classified under this broad category because it was a necessary expenses for the vessels navigation. As long as an expense on the vessel is indispensable to the maintenance and navigation of the vessel, it may properly be treated as a maritime lien for necessaries under Section 21, P.D. No. 1521. With respect to the claim for salary and wages of the crew, there is no doubt that it is also one of the enumerated claims under Section 17, P.D. No. 1521, second only to judicial costs and taxes due the government in preference and, thus, having a status superior to DBPs mortgage lien. All told, the determination of the existence and the amount of POLIANDs claim for maritime lien is a finding of fact which is within the province of the courts below. Findings of fact of lower courts are deemed conclusive and binding upon the Supreme Court except when the findings are grounded on speculation, surmises or conjectures; when the inference made is manifestly mistaken, absurd or impossible; when there is grave abuse of discretion in the appreciation of facts; when the factual findings of the trial and appellate courts are conflicting; when the Court of Appeals, in making its findings, has gone beyond the issues of the case and such findings are contrary to the admissions of both appellant and appellee; when the judgment of the appellate court is premised on a misapprehension of facts or when it has failed to notice certain relevant facts which, if properly considered, will justify a different conclusion; when the findings of fact are conclusions without citation of specific evidence upon which they are based; and when findings of fact of the Court of Appeals are premised on the absence of evidence but are contradicted by the evidence on record. [59] The Court finds no sufficient justification to reverse the findings of the trial court and the appellate court in respect to the existence and amount of maritime lien. Only NDC is liable on the maritime lien POLIAND maintains that DBP is also solidarily liable for the payment of the preferred maritime lien over the proceeds of the foreclosure sale by virtue of Section 17, P.D. No. 1521. It claims that since the lien was incurred prior to the constitution of the mortgage on January 25, 1982, the preferred maritime lien attaches to the proceeds of the sale of the vessels and has priority over all claims against the vessels in accordance with Section 17, P.D. No. 1521.[60] In its defense, DBP reiterates the following arguments: (1) The salary and crews wages cannot be claimed by POLIAND or its predecessors-ininterest because none of them is a sailor or mariner; [61] (2) Even if conceded, POLIANDs preferred maritime lien is unenforceable pursuant to Article 1403 of the Civil Code; and (3) POLIANDs claim is barred by prescription and laches.[62] The first argument is absurd. Although POLIAND or its predecessorsin-interest are not sailors entitled to wages, they can still make a claim for

the advances spent for the salary and wages of the crew under the principle of legal subrogation. As explained in Philippine National Bank v. Court of Appeals,[63] a third person who satisfies the obligation to an original maritime lienor may claim from the debtor because the third person is subrogated to the rights of the maritime lienor over the vessel. The Court explained as follows: 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, Hong Kong United Dockyards, Ltd. As a person not interested in the fulfillment of the obligation between PISC and Hong Kong United Dockyards, Ltd., Citibank was subrogated to the rights of Hong Kong United Dockyards, Ltd. as a 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. Considering that Citibank paid off the debt of PISC to Hong Kong United Dockyards, Ltd. it became the transferee of all the rights of Hong Kong Dockyards, Ltd. as against PISC, including the maritime lien over the vessel M/V Asian Liberty.[64] DBPs reliance on the Statute of Frauds is misplaced. Article 1403 (2) of the Civil Code, which enumerates the contracts covered by the Statue of Frauds, is inapplicable. To begin with, there is no privity of contract between POLIAND or its predecessors-in-interest, on one hand, and DBP, on the other. POLIAND hinges its claim on the maritime lien based on LOI No. 1195 and P.D. No. 1521, and not on any contract or agreement. Neither can DBP invoke prescription or laches against POLIAND. Under Article 1144 of the Civil Code, an action upon an obligation created by law must be brought within ten years from the time the right of action accrues. The right of action arose after January 15, 1982, when NDC partially paid off GALLEONs obligations to POLIANDs predecessor-in-interest, Asian Hardwood. At that time, the prescriptive period for the enforcement by action of the balance of GALLEONs outstanding obligations had commenced. Prescription could not have set in because the prescriptive period was tolled when POLIAND made a written demand for the satisfaction of the obligation on September 24, 1991, or before the lapse of the ten-year prescriptive period. Laches also do not lie because there was no unreasonable delay on the part of POLIAND in asserting its rights. Indeed, it instituted the instant suit seasonably. All things considered, however, the Court finds that only NDC is liable for the payment of the maritime lien. A maritime lien is akin to a mortgage lien in that in spite of the transfer of ownership, the lien is not extinguished. The maritime lien is inseparable from the vessel and until discharged, it follows the vessel. Hence, the enforcement of a maritime lien is in the nature and character of a proceeding quasi in rem.[65] The expression action in rem is, in its narrow application, used only with reference to certain proceedings in courts of admiralty wherein the property alone is treated as responsible for the claim or obligation upon which the proceedings are based. [66] Considering that DBP subsequently transferred ownership of the vessels to NDC, the Court holds the latter liable on the maritime lien. Notwithstanding the subsequent transfer of the vessels to NDC, the maritime lien subsists.

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This is a unique situation where the extrajudicial foreclosure of the GALLEON vessels took place without the intervention of GALLEONs other creditors including POLIANDs predecessors-in-interest who were apparently left in the dark about the foreclosure proceedings. At that time, GALLEON was already a failing corporation having borrowed large sums of money from banks and financial institutions. When GALLEON defaulted in the payment of its obligations to DBP, the latter foreclosed on its mortgage over the GALLEON ships. The other creditors, including POLIANDs predecessors-in-interest who apparently had earlier or superior rights over the foreclosed vessels, could not have participated as they were unaware and were not made parties to the case. On this note, the Court believes and so holds that the institution of the extrajudicial foreclosure proceedings was tainted with bad faith. It took place when NDC had already assumed the management and operations of GALLEON. NDC could not have pleaded ignorance over the existence of a prior or preferential lien on the vessels subject of foreclosure. As aptly held by the Court of Appeals: NDCs claim that even if maritime liens existed over the proceeds of the foreclosure sale of the vessels which it subsequently purchased from DBP, it is not liable as it was a purchaser in good faith fails, given the fact that in its actual control over the management and operations of GALLEON, it was put on notice of the various obligations of GALLEON including those secured from ASIAN HARDWOOD as in fact it even paid ASIAN HARDWOOD US$1,000,000.00 in partial settlement of GALLEONs obligations, before it (NDC) mortgaged the 5 vessels to DBP on January 25, 1982. Parenthetically, LOI 1195 directed NDC to discharge such maritime liens as may be necessary to allow the foreclosed vessels to engage on the international shipping business. In fine, it is with respect to POLIANDs claim for payment of US$1,930,298.56 representing part of the proceeds of GALLEONs loan which was spent by GALLEON for ship modification and salaries of crew that NDC is liable.[67] Thus, NDC cannot claim that it was a subsequent purchaser in good faith because it had knowledge that the vessels were subject to various liens. At the very least, to evince good faith, NDC could have inquired as to the existence of other claims against the vessels apart from DBPs mortgage lien. Considering that NDC was also in a position to know or discover the financial condition of GALLEON when it took over its management, the lack of notice to GALLEONs creditors suggests that the extrajudicial foreclosure was effected to prejudice the rights of GALLEONs other creditors. NDC also cannot rely on Administrative Order No. 64, [68] which directed the transfer of the vessels to the APT, on its hypothesis that such transfer extinguished the lien. APT is a mere conduit through which the assets acquired by the National Government are provisionally held and managed until their eventual disposal or privatization. Administrative Order No. 64 did not divest NDC of its ownership over the GALLEON vessels because APT merely holds the vessels in trust for NDC until the same are disposed. Even if ownership was transferred to APT, that would not be sufficient to discharge the maritime lien and deprive POLIAND of its

recourse based on the lien. Such denouement would smack of denial of due process and taking of property without just compensation. NDCs liability for attorneys fees The lower court awarded attorneys fees to POLIAND in the amount of P1,000,000.00 on account of the amount involved in the case and the protracted character of the litigation. [69] The award was affirmed by the Court of Appeals as against NDC only.[70] This Court finds no reversible error with the award as upheld by the appellate court. Under Article 2208[71] of the Civil Code, attorneys fees may be awarded inter alia when the defendants act or omission has compelled the plaintiff to incur expenses to protect his interest or in any other case where the court deems it just and equitable that attorneys fees and expenses of litigation be recovered. One final note. There is a discrepancy between the dispositive portion of the Court of Appeals Decision and the body thereof with respect to the amount of the maritime lien in favor of POLIAND. The dispositive portion ordered NDC to pay POLIAND the amount of US$1,920,298.56 plus interest[72] despite a finding that NDCs liability to POLIAND represents the maritime lien[73] which according to the complaint[74] is the alternative cause of action of POLIAND in the smaller amount of US$1,193,298.56, as prayed for by POLIAND in its complaint. The general rule is that where there is conflict between the dispositive portion or the fallo and the body of the decision, the fallo controls. This rule rests on the theory that the fallo is the final order while the opinion in the body is merely a statement ordering nothing. However, where the inevitable conclusion from the body of the decision is so clear as to show that there was a mistake in the dispositive portion, the body of the decision will prevail.[75] In the instant case, it is clear from the trial court records and the Court of Appeals Rollo that the bigger amount awarded in the dispositive portion of the Court of Appeals Decision was a typographical mistake. Considering that the appellate courts Decision merely affirmed the trial courts finding with respect to the amount of maritime lien, the bigger amount stated in the dispositive portion of the Court of Appeals Decision must have been awarded through indavertence. WHEREFORE, both Petitions in G.R. No. 143866 and G.R. No. 143877 are DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 53257 is MODIFIED to the extent that National Development Company is liable to Poliand Industrial Limited for the amount of One Million One Hundred Ninety Three Thousand Two Hundred Ninety Eight US Dollars and Fifty-Six US Cents (US$ 1,193,298.56), plus interest of 12% per annum computed from 25 September 1991 until fully paid. In other respects, said Decision is AFFIRMED. No pronouncement as to costs. SO ORDERED. [G.R. No. 92735. June 8, 2000] MONARCH INSURANCE CO., INC., TABACALERA INSURANCE CO., INC and Hon. Judge AMANTE PURISIMA, petitioners, vs. COURT OF APPEALS and ABOITIZ SHIPPING CORPORATION, respondents. [G.R. No. 94867. June 8, 2000]

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ALLIED GUARANTEE INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS, Presiding Judge, RTC Manila, Br. 24 and ABOITIZ SHIPPING CORPORATION, respondents. [G.R. No. 95578. June 8, 2000] EQUITABLE INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, Former First Division Composed of Hon. Justices RODOLFO NOCON, PEDRO RAMIREZ, and JESUS ELBINIAS and ABOITIZ SHIPPING CORPORATION, respondents. DECISION DE LEON, JR., J.: Before us are three consolidated petitions. G.R. No. 92735 is a petition for review filed under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals dated March 29, 1990 in CA-G.R. SP. Case No. 17427 which set aside the writ of execution issued by the lower court for the full indemnification of the claims of the petitioners, Monarch Insurance Company (hereafter "Monarch") and Tabacalera Insurance Company, Incorporated (hereafter "Tabacalera") against private respondent, Aboitiz Shipping Corporation (hereafter "Aboitiz") on the ground that the latter is entitled to the benefit of the limited liability rule in maritime law; G.R. No. 94867 is a petition for certiorari under Rule 65 of the Rules of Court to annul and set aside the decision of the Court of Appeals dated August 15, 1990 in CA-G.R. SP No. 20844 which ordered the lower court to stay the execution of the judgment in favor of the petitioner, Allied Guarantee Insurance Company (hereafter "Allied") against Aboitiz insofar as it impairs the rights of the other claimants to their pro-rata share in the insurance proceeds from the sinking of the M/V P. Aboitiz, in accordance with the rule on limited liability; and G.R. No. 95578 is a petition for review under Rule 45 of the Rules of Court seeking a reversal of the decision of the Court of Appeals dated August 24, 1990 and its resolution dated October 4, 1990 in C.A. G.R. Civil Case No. 15071 which modified the judgment of the lower court by applying the hypothecary rule on limited liability to limit the lower courts award of actual damages to petitioner Equitable Insurance Corporation (hereafter "Equitable") to its pro-rata share in the insurance proceeds from the sinking of the M/V P. Aboitiz. All cases arose from the loss of cargoes of various shippers when the M/V P. Aboitiz, a common carrier owned and operated by Aboitiz, sank on her voyage from Hong Kong to Manila on October 31, 1980. Seeking indemnification for the loss of their cargoes, the shippers, their successorsin-interest, and the cargo insurers such as the instant petitioners filed separate suits against Aboitiz before the Regional Trial Courts. The claims numbered one hundred and ten (110) for the total amount ofP41,230,115.00 which is almost thrice the amount of insurance proceeds of P14,500,000.00 plus earned freight of P500,000.00 according to Aboitiz. To this day, some of these claims, including those of herein petitioners, have not yet been settled. G.R. No. 92735. Monarch and Tabacalera are insurance carriers of lost cargoes. They indemnified the shippers and were consequently subrogated to their rights, interests and actions against Aboitiz, the cargo carrier. [1] Because Aboitiz refused to compensate Monarch, it filed two complaints against Aboitiz, docketed as Civil Cases Nos. 82-2767 and 82-2770. For its part, Tabacalera

also filed two complaints against the same defendant, docketed as Civil Cases Nos. 82-2768 and 82-2769. As these four (4) cases had common causes of action, they were consolidated and jointly tried. [2] In Civil Case No. 82-2767 where Monarch also named Malaysian International Shipping Corporation and Litonjua Merchant Shipping Agency as Aboitizs co-defendants, Monarch sought recovery of P29,719.88 representing the value of three (3) pallets of glass tubing that sank with the M/V P. Aboitiz, plus attorneys fees of not less than P5,000.00, litigation expenses, interest at the legal rate on all these amounts, and cost of suit. [3] Civil Case No. 82-2770 was a complaint filed by Monarch against Aboitiz and co-defendants Compagnie Maritime des Chargeurs Reunis and F.E. Zuellig (M), Inc. for the recovery of P39,579.66 representing the value of one case of motor vehicle parts which was lost when the M/V P. Aboitiz sank on her way to Manila, plus attorneys fees of not less than P10, 000.00 and cost of suit.[4] Tabacalera sought against Franco Belgian Services, F. E. Zuellig and Aboitiz in Civil Case No. 82-2768 the recovery ofP284,218.00 corresponding to the value of nine (9) cases of Renault spare parts, P213,207.00 for the value of twenty-five (25) cases of door closers and P42,254.00 representing the value of eighteen (18) cases of plastic spangle, plus attorneys fees of not less than P50,000.00 and cost of suit. [5] In Civil Case No. 82-2769, Tabacalera claimed from Hong Kong Island Shipping Co., Ltd., Citadel Lines and Aboitiz indemnification in the amount of P75,058.00 for the value of four (4) cartons of motor vehicle parts that foundered with the M/V P. Aboitiz, plus attorneys fees of not less than P20,000.00 and cost of suit.[6] In its answer with counterclaim, Aboitiz rejected responsibility for the claims on the ground that the sinking of its cargo vessel was due to force majeure or an act of God.[7] Aboitiz was subsequently declared as in default for its failure to appear during the pre-trial. Its counsel filed a motion to set aside the order of default with notice of his withdrawal as such counsel. Before the motion could be acted upon, Judge Bienvenido Ejercito, the presiding judge of the trial court, was promoted to the then Intermediate Appellate Court. The cases were thus re-raffled to Branch VII of the RTC of Manila presided by Judge Amante P. Purisima, the co-petitioner in G.R. No. 92735. Without resolving the pending motion to set aside the order of default, the trial court set the cases for hearing. However, since Aboitiz had repeatedly failed to appear in court, the trial court denied the said motion and allowed Monarch and Tabacalera to present evidence ex-parte.[8] Monarch and Tabacalera proffered in evidence the survey of Perfect Lambert, a surveyor commissioned to investigate the possible cause of the sinking of the cargo vessel. The survey established that on her voyage to Manila from Hong Kong, the vessel did not encounter weather so inclement that Aboitiz would be exculpated from liability for losses. In his note of protest, the master of M/V P. Aboitiz described the wind force encountered by the vessel as from ten (10) to fifteen (15) knots, a weather condition classified as typical and moderate in the South China Sea at that particular time of the year. The survey added that the seaworthiness of the vessel was in question especially because the breaches of the hull and the serious flooding of two (2) cargo holds occurred simultaneously in "seasonal weather."[9]

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In due course, the trial court rendered judgment against Aboitiz but the complaint against all the other defendants was dismissed. Aboitiz was held liable for the following: (a) in Civil Case No. 82-2767, P29,719.88 with legal interest from the filing of the complaint until fully paid plus attorneys fees of P30,000.00 and cost of suit; (b) in Civil Case No. 82-2768, P539,679.00 with legal interest of 12% per annum from date of filing of the complaint until fully paid, plus attorneys fees of P30,000.00, litigation expenses and cost of suit; (c) in Civil Case No. 82-2769, P75,058.00 with legal interest of 12% per annum from date of filing of the complaint until fully paid, plus P5,000.00 attorneys fees, litigation expenses and cost of suit, and (d) in Civil Case No. 82-2770, P39,579.66 with legal interest of 12% per annum from date of filing of the complaint until fully paid, plus attorneys fees ofP5,000.00, litigation expenses and cost of suit. Aboitiz filed a motion for reconsideration of the decision and/or for new trial to lift the order of default. The court denied the motion on August 27, 1986.[10] Aboitiz appealed to the Court of Appeals but the appeal was dismissed for its failure to file appellants brief. It subsequently filed an urgent motion for reconsideration of the dismissal with prayer for the admission of its attached appellants brief. The appellate court denied that motion for lack of merit in a Resolution dated July 8, 1988. [11] Aboitiz thus filed a petition for review before this Court. Docketed as G.R. No. 84158, the petition was denied in the Resolution of October 10, 1988 for being filed out of time. Aboitizs motion for the reconsideration of said Resolution was similarly denied. [12]Entry of judgment was made in the case.
[13]

Consequently, Monarch and Tabacalera moved for execution of judgment. The trial court granted the motion on April 4, 1989 [14]and issued separate writs of execution. However, on April 12, 1989, Aboitiz, invoking the real and hypothecary nature of liability in maritime law, filed an urgent motion to quash the writs of execution. [15] According to Aboitiz, since its liability is limited to the value of the vessel which was insufficient to satisfy the aggregate claims of all 110 claimants, to indemnify Monarch and Tabacalera ahead of the other claimants would be prejudicial to the latter. Monarch and Tabacalera opposed the motion to quash.[16] On April 17, 1989, before the motion to quash could be heard, the sheriff levied upon five (5) heavy equipment owned by Aboitiz for public auction sale. At said sale, Monarch was the highest bidder for one (1) unit FL-151 Fork Lift (big) and one (1) unit FL-25 Fork Lift (small). Tabacalera was also the highest bidder for one (1) unit TCH TL-251 Hyster Container Lifter, one (1) unit Hyster Top Lifter (out of order), and one (1) unit ER-353 Crane. The corresponding certificates of sale[17] were issued to Monarch and Tabacalera. On April 18, 1989, the day before the hearing of the motion to quash, Aboitiz filed a supplement to its motion, to add the fact that an auction sale had taken place. On April 19, 1989, Judge Purisima issued an order denying the motion to quash but freezing execution proceedings for ten (10) days to give Aboitiz time to secure a restraining order from a higher court.[18] Execution was scheduled to resume to fully satisfy the judgment when the grace period shall have lapsed without such restraining order having been obtained by Aboitiz.

Aboitiz filed with the Court of Appeals a petition for certiorari and prohibition with prayer for preliminary injunction and/or temporary restraining order under CA-G.R. No. SP-17427. [19] On March 29, 1990, the appellate court rendered a Decision the dispositive portion of which reads: "WHEREFORE, the writ of certiorari is hereby granted, annulling the subject writs of execution, auction sale, certificates of sale, and the assailed orders of respondent Judge dated April 4 and April 19, 1989 insofar as the money value of those properties of Aboitiz, levied on execution and sold at public auction, has exceeded the pro-rata shares of Monarch and Tabacalera in the insurance proceeds of Aboitiz in relation to the pro-rata shares of the 106 other claimants. "The writ of prohibition is also granted to enjoin respondent Judge, Monarch and Tabacalera from proceeding further with execution of the judgments in question insofar as the execution would satisfy the claims of Monarch and Tabacalera in excess of their pro-rata shares and in effect reduce the balance of the proceeds for distribution to the other claimants to their prejudice. "The question of whether or how much of the claims of Monarch and Tabacalera against the insurance proceeds has already been settled through the writ of execution and auction sale in question, being factual issues, shall be threshed out before respondent Judge. "The writ of preliminary injunction issued in favor of Aboitiz, having served its purpose, is hereby lifted. No pronouncement as to costs. "SO ORDERED."[20] Hence, the instant petition for review on certiorari where petitioners Monarch, Tabacalera and Judge Purisima raise the following assignment of errors: 1.....The appellate court grievously erred in re-opening the Purisima decisions, already final and executory, on the alleged ground that the issue of real and hypothecary liability had not been previously resolved by Purisima, the appellate court, and this Hon. Supreme Court; 2.....The appellate court erred when it resolved that Aboitiz is entitled to the limited real and hypothecary liability of a ship owner, considering the facts on record and the law on the matter. 3.....The appellate court erred when it concluded that Aboitiz does not have to present evidence to prove its entitlement to the limited real and hypothecary liability. 4.....The appellate court erred in ignoring the case of "Aboitiz Shipping Corporation v. CA and Allied Guaranty Insurance Co., Inc." (G.R. No. 88159), decided by this Honorable Supreme Court as early as November 13, 1989, considering that said case, now factual and executory, is in pari materia with the instant case.

26

5.....The appellate court erred in not concluding that irrespective of whether Aboitiz is entitled to limited hypothecary liability or not, there are enough funds to satisfy all the claimants. 6.....The appellate court erred when it concluded that Aboitiz had made an "abandonment" as envisioned by Art. 587 of the Code of Commerce. 7.....The appellate court erred when it concluded that other claimants would suffer if Tabacalera and Monarch would be fully paid. 8.....The appellate court erred in concluding that certiorari was the proper remedy for Aboitiz.[21] G.R. NOS. 94867 & 95578 Allied as insurer-subrogee of consignee Peak Plastic and Metal Products Limited, filed a complaint against Aboitiz for the recovery of P278,536.50 representing the value of 676 bags of PVC compound and 10 bags of ABS plastic lost on board the M/V P. Aboitiz, with legal interest from the date of filing of the complaint, plus attorneys fees, exemplary damages and costs. [22] Docketed as Civil Case No. 138643, the case was heard before the Regional Trial Court of Manila, Branch XXIV, presided by Judge Sergio D. Mabunay. On the other hand, Equitable, as insurer-subrogee of consignee-assured Axel Manufacturing Corporation, filed an amended complaint against Franco Belgian Services, F.E. Zuellig, Inc. and Aboitiz for the recovery of P194,794.85 representing the value of 76 drums of synthetic organic tanning substances and 1,000 kilograms of optical bleaching agents which were also lost on board the M/V P. Aboitiz, with legal interest from the date of filing of the complaint, plus 25% attorneys fees, exemplary damages, litigation expenses and costs of suit.[23] Docketed as Civil Case No. 138396, the complaint was assigned to the Regional Trial Court of Manila, Branch VIII. In its answer with counterclaim in the two cases, Aboitiz disclaimed responsibility for the amounts being recovered, alleging that the loss was due to a fortuitous event or an act of God. It prayed for the dismissal of the cases and the payment of attorneys fees, litigation expenses plus costs of suit. It similarly relied on the defenses of force mejeure, seaworthiness of the vessel and exercise of due diligence in the carriage of goods as regards the cross-claim of its co-defendants.[24] In support of its position, Aboitiz presented the testimonies of Capt. Gerry N. Racines, master mariner of the M/V P. Aboitiz, and Justo C. Iglesias, a meteorologist of the Philippine Atmospheric Geophysical and Astronomical Services Administration (PAGASA). The gist of the testimony of Capt. Racines in the two cases follows: The M/V P. Aboitiz left Hong Kong for Manila at about 7:30 in the evening of October 29, 1980 after securing a departure clearance from the Hong Kong Port Authority. The departure was delayed for two hours because he (Capt. Racines) was observing the direction of the storm that crossed the Bicol Region. He proceeded with the voyage only after being informed that the storm had abated. At about 8:00 oclock in the morning of October 30, 1980, after more than twelve (12) hours of navigation, the vessel suddenly encountered rough seas with waves about fifteen to twenty-five feet high.

He ordered his chief engineer to check the cargo holds. The latter found that sea water had entered cargo hold Nos. 1 and 2. He immediately directed that water be pumped out by means of the vessels bilge pump, a device capable of ejecting 180 gallons of water per minute. They were initially successful in pumping out the water. At 6:00 a.m. of October 31, 1980, however, Capt. Racines received a report from his chief engineer that the water level in the cargo holds was rapidly rising. He altered the vessels course and veered towards the northern tip of Luzon to prevent the vessel from being continuously pummeled by the waves. Despite diligent efforts of the officers and crew, however, the vessel, which was approximately 250 miles away from the eye of the storm, began to list on starboard side at 27 degrees. Capt. Racines and his crew were not able to make as much headway as they wanted because by 12:00 noon of the same day, the cargo holds were already flooded with sea water that rose from three to twelve feet, disabling the bilge pump from containing the water. The M/V P. Aboitiz sank at about 7:00 p.m. of October 31, 1980 at latitude 18 degrees North, longitude 170 degrees East in the South China Sea in between Hong Kong, the Philippines and Taiwan with the nearest land being the northern tip of Luzon, around 270 miles from Cape Bojeador, Bangui, Ilocos Norte. Responding to the captains distress call, the M/V Kapuas (Capuas) manned by Capt. Virgilio Gonzales rescued the officers and crew of the ill-fated M/V P. Aboitiz and brought them to Waileen, Taiwan where Capt. Racines lodged his marine protest dated November 3, 1980. Justo Iglesias, meteorologist of PAGASA and another witness of Aboitiz, testified in both cases that during the inclusive dates of October 28-31, 1980, a stormy weather condition prevailed within the Philippine area of responsibility, particularly along the sea route from Hong Kong to Manila, because of tropical depression "Yoning."[25] PAGASA issued weather bulletins from October 28-30, 1980 while the storm was still within Philippine territory. No domestic bulletins were issued the following day when the storm which hit Eastern Samar, Southern Quezon and Southern Tagalog provinces, had made its exit to the South China Sea through Bataan. Allied and Equitable refuted the allegation that the M/V P. Aboitiz and its cargo were lost due to force majeure, relying mainly on the marine protest filed by Capt. Racines as well as on the Beaufort Scale of Wind. In his marine protest under oath, Capt. Racines affirmed that the wind force on October 29-30, 1980 was only ten (10) to fifteen (15) knots. Under the Beaufort Scale of Wind, said wind velocity falls under scale No. 4 that describes the sea condition as "moderate breeze," and "small waves becoming longer, fairly frequent white horses."[26] To fortify its position, Equitable presented Rogelio T. Barboza who testified that as claims supervisor and processor of Equitable, he recommended payment to Axel Manufacturing Corporation as evidenced by the cash voucher, return check and subrogation receipt. Barboza also presented a letter of demand to Aboitiz which, however, the latter ignored. [27] On April 24, 1984, the trial court rendered a decision that disposed of Civil Case No. 138643 as follows:

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"WHEREFORE, judgment is hereby rendered ordering defendant Aboitiz Shipping Company to pay plaintiff Allied Guarantee Insurance Company, Inc. the sum of P278,536.50, with legal interest thereon from March 10, 1981, then date of the filing of the complaint, until fully paid, plus P30,000.00 as attorneys fees, with costs of suit. "SO ORDERED."[28] A similar decision was arrived at in Civil Case No. 138396, the dispositive portion of which reads: "WHEREFORE, in view of the foregoing, this Court hereby renders judgment in favor of plaintiff and against defendant Aboitiz Shipping Corporation, to pay the sum of P194, 794. 85 with legal rate of interest thereon from February 27, 1981 until fully paid; attorneys fees of twenty-five (25%) percent of the total claim, plus litigation expenses and costs of litigation. SO ORDERED."[29] In Civil Case No. 138643, Aboitiz appealed to the Court of Appeals under CA-G.R. CV No. 04121. On March 23, 1987, the Court of Appeals affirmed the decision of the lower court. A motion for reconsideration of the said decision was likewise denied by the Court of Appeals on May 3, 1989. Aggrieved, Aboitiz then filed a petition for review with this Court docketed as G.R. No. 88159 which was denied for lack merit. Entry of judgment was made and the lower courts decision in Civil Case No. 138643 became final and executory. Allied prayed for the issuance of a writ of execution in the lower court which was granted by the latter on April 4, 1990. To stay the execution of the judgment of the lower court, Aboitiz filed a petition for certiorari and prohibition with preliminary injunction with the Court of Appeals docketed as CA-G.R. SP No. 20844. [30] On August 15, 1990, the Court of Appeals rendered the assailed decision, the dispositive portion of which reads as follows: "WHEREFORE, the challenged order of the respondent Judge dated April 4, 1990 granting the execution is hereby set aside. The respondent Judge is further ordered to stay the execution of the judgment insofar as it impairs the rights of the 100 other claimants to the insurance proceeds including the rights of the petitioner to pay more than the value of the vessel or the insurance proceeds and to desist from executing the judgment insofar as it prejudices the pro-rata share of all claimants to the insurance proceeds. No pronouncement as to costs. "SO ORDERED."[31] Hence, Allied filed the instant petition for certiorari, mandamus and injunction with preliminary injunction and/or restraining order before this Court alleging the following assignment of errors: 1.....Respondent Court of Appeals gravely erred in staying the immediate execution of the judgment of the lower court as it has no authority nor jurisdiction to directly or indirectly alter, modify, amend, reverse or invalidate a final judgment as affirmed by the Honorable Supreme Court in G.R. No. 88159.

2.....Respondent Court of Appeals with grave abuse of discretion amounting to lack or excess of jurisdiction, brushed aside the doctrine in G.R. No. 88159 which is now the law of the case and observance of time honored principles of stare decisis, res adjudicata and estoppel by judgment. 3.....Real and hypothecary rule under Articles 587, 590 and 837 of the Code of Commerce which is the basis of the questioned decision (Annex "C" hereof) is without application in the face of the facts found by the lower court, sustained by the Court of Appeals in CA-G.R. No. 04121 and affirmed in toto by the Supreme Court in G.R. No. 88159. 4.....Certiorari as a special remedy is unavailing for private respondent as there was no grave abuse of discretion nor lack or excess of jurisdiction for Judge Mabunay to issue the order of April 4, 1990 which was in accord with law and jurisprudence, nor were there intervening facts and/or supervening events that will justify respondent court to issue a writ of certiorari or a restraining order on a final and executory judgment of the Honorable Supreme Court.
[32]

From the decision of the trial court in Civil Case No. 138396 that favored Equitable, Aboitiz likewise appealed to the Court of Appeals through CAG.R. CV No. 15071. On August 24, 1990, the Court of Appeals rendered the Decision quoting extensively its Decision in CA-G.R. No. SP-17427 (now G.R. No. 92735) and disposing of the appeal as follows: "WHEREFORE, we hereby affirm the trial courts awards of actual damages, attorney s fees and litigation expenses, with the exception of legal interest, in favor of plaintiffappellee Equitable Insurance Corporation as subrogee of the consignee for the loss of its shipment aboard the M/V `P. Aboitiz and against defendant-appellant Aboitiz Shipping Corporation. However, the amount and payment of those awards shall be subject to a determination of the pro-rata share of said appellee in relation to the pro-rata shares of the 109 other claimants, which determination shall be made by the trial court. This case is therefore hereby ordered remanded to the trial court which shall reopen the case and receive evidence to determine appellees pro-rata share as aforesaid. No pronouncement as to costs. "SO ORDERED."[33] On September 12, 1990, Equitable moved to reconsider the Court of Appeals Decision. The Court of Appeals denied the motion for reconsideration on October 4, 1990.[34] Consequently, Equitable filed with this Court a petition for review alleging the following assignment of errors: 1.....Respondent Court of Appeals, with grave abuse of discretion amounting to lack or excess of jurisdiction, erroneously brushed aside the doctrine in G.R. No. 88159 which is now the law of the case as held in G.R. No. 89757

28

involving the same and identical set of facts and cause of action relative to the sinking of the M/V `P. Aboitiz and observance of the time honored principles of stare decisis, and estoppel by judgment. 2.....Real and hypothecary rule under Articles 587, 590 and 837 of the Code of Commerce which is the basis of the assailed decision and resolution is without application in the face of the facts found by the trial court which conforms to the conclusion and finding of facts arrived at in a similar and identical case involving the same incident and parties similarly situated in G.R. No. 88159 already declared as the `law of the case in a subsequent decision of this Honorable Court in G.R. No. 89757 promulgated on August 6, 1990. 3.....Respondent Court of Appeals gravely erred in concluding that limited liability rule applies in case of loss of cargoes when the law itself does not distinguish; fault of the shipowner or privity thereto constitutes one of the exceptions to the application of limited liability under Article 587, 590 and 837 of the Code of Commerce, Civil Code provisions on common carriers for breach of contract of carriage prevails.[35] These three petitions in G.R. Nos. 92735, 94867 and 95578 were consolidated in the Resolution of August 5, 1991 on the ground that the petitioners "have identical causes of action against the same respondent and similar reliefs are prayed for."[36] The threshold issue in these consolidated petitions is the applicability of the limited liability rule in maritime law in favor of Aboitiz in order to stay the execution of the judgments for full indemnification of the losses suffered by the petitioners as a result of the sinking of the M/V P. Aboitiz. Before we can address this issue, however, there are procedural matters that need to be threshed out. First. At the outset, the Court takes note of the fact that in G.R. No. 92735, Judge Amante Purisima, whose decision in the Regional Trial Court is sought to be upheld, is named as a co-petitioner. In Calderon v. Solicitor General,[37] where the petitioner in the special civil action of certiorari and mandamus was also the judge whose order was being assailed, the Court held that said judge had no standing to file the petition because he was merely a nominal or formal party-respondent under Section 5 of Rule 65 of the Rules of Court. He should not appear as a party seeking the reversal of a decision that is unfavorable to the action taken by him. The Court there said: "Judge Calderon should be reminded of the well-known doctrine that a judge should detach himself from cases where his decision is appealed to a higher court for review. The raison detre for such doctrine is the fact that a judge is not an active combatant in such proceeding and must leave the opposing parties to contend their individual positions and for the appellate court to decide the issues without his active participation. By filing this case,

petitioner in a way ceased to be judicial and has become adversarial instead."[38] While the petition in G.R. No. 92735 does not expressly show whether or not Judge Purisima himself is personally interested in the disposition of this petition or he was just inadvertently named as petitioner by the real parties in interest, the fact that Judge Purisima is named as petitioner has not escaped this Courts notice. Judges and litigants should be reminded of the basic rule that courts or individual judges are not supposed to be interested "combatants" in any litigation they resolve. Second. The petitioners contend that the inapplicability of the limited liability rule to Aboitiz has already been decided on by no less than this Court in G.R. No. 88159 as early as November 13, 1989 which was subsequently declared as "law of the case" in G.R. No. 89757 on August 6, 1990. Herein petitioners cite the aforementioned cases in support of their theory that the limited liability rule based on the real and hypothecary nature of maritime law has no application in the cases at bar. The existence of what petitioners insist is already the "law of the case" on the matter of limited liability is at best illusory. Petitioners are either deliberately misleading this Court or profoundly confused. As elucidated in the case of Aboitiz Shipping Corporation vs. General Accident Fire and Life Assurance Corporation,[39] "An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280-282, Rollo) shows that the same settles two principal matters, first of which is that the doctrine of primary administrative jurisdiction is not applicable therein; and second is that a limitation of liability in said case would render inefficacious the extraordinary diligence required by law of common carriers. "It should be pointed out, however, that the limited liability discussed in said case is not the same one now in issue at bar, but an altogether different aspect. The limited liability settled in G.R. No. 88159 is that which attaches to cargo by virtue of stipulations in the Bill of Lading, popularly known as package limitation clauses, which in that case was contained in Section 8 of the Bill of Lading and which limited the carriers liability to US$500.00 for the cargo whose value was therein sought to be recovered. Said resolution did not tackle the matter of the Limited Liability Rule arising out of the real and hypothecary nature of maritime law, which was not raised therein, and which is the principal bone of contention in this case. While the matters threshed out in G.R. No. 88159, particularly those dealing with the issues on primary administrative jurisdiction and the package liability limitation provided in the Bill of Lading are now settled and should no longer be touched, the instant case raises a completely different issue."[40] Third. Petitioners asseverate that the judgments of the lower courts, already final and executory, cannot be directly or indirectly altered, modified, amended, reversed or invalidated.

29

The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order its execution, is not an absolute one. We have allowed the suspension of execution in cases of special and exceptional nature when it becomes imperative in the higher interest of justice.[41] The unjust and inequitable effects upon various other claimants against Aboitiz should we allow the execution of judgments for the full indemnification of petitioners claims impel us to uphold the stay of execution as ordered by the respondent Court of Appeals. We reiterate our pronouncement in Aboitiz Shipping Corporation vs. General Accident Fire and Life Assurance Corporation on this very same issue. "This brings us to the primary question herein which is whether or not respondent court erred in granting execution of the full judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the application of the limited liability enunciated under the appropriate articles of the Code of Commerce. x x x. Collaterally, determination of the question of whether execution of judgments which have become final and executory may be stayed is also an issue. "We shall tackle the latter issue first. This Court has always been consistent in its stand that the very purpose for its existence is to see the accomplishment of the ends of justice. Consistent with this view, a number of decisions have originated herefrom, the tenor of which is that no procedural consideration is sancrosanct if such shall result in the subverting of justice. The right to execution after finality of a decision is certainly no exception to this. Thus, inCabrias v. Adil (135 SCRA 355 [1885]), this Court ruled that: xxx............xxx............xxx x x x every court having jurisdiction to render a particular judgment has inherent power to enforce it, and to exercise equitable control over such enforcement. The court has authority to inquire whether its judgment has been executed, and will remove obstructions to the enforcement thereof. Such authority extends not only to such orders and such writs as may be necessary to prevent an improper enforcement of the judgment. If a judgment is sought to be perverted and made a medium of consummating a wrong the court on proper application can prevent it."[42] Fourth. Petitioners in G.R. No. 92735 aver that it was error for the respondent Court of Appeals to allow Aboitiz the benefit of the limited liability rule despite its failure to present evidence to prove its entitlement thereto in the court below. Petitioners Monarch and Tabacalera remind this Court that from the inception of G.R. No. 92735 in the lower court and all the way to the Supreme Court, Aboitiz had not presented an iota of evidence to exculpate itself from the charge of negligence for the simple reason that it was declared as in default. [43]

It is true that for having been declared in default, Aboitiz was precluded from presenting evidence to prove its defenses in the court a quo. We cannot, however, agree with petitioners that this circumstance prevents the respondent Court of Appeals from taking cognizance of Aboitiz defenses on appeal. It should be noted that Aboitiz was declared as in default not for its failure to file an answer but for its absence during pre-trial and the trial proper. In Aboitiz answer with counterclaim, it claimed that the sinking of the M/V P. Aboitiz was due to an act of God or unforeseen event and that the said ship had been seaworthy and fit for the voyage. Aboitiz also alleged that it exercised the due diligence required by law, and that considering the real and hypothecary nature of maritime trade, the sinking justified the extinguishment of its liability for the lost shipment. [44] A judgment of default does not imply a waiver of rights except that of being heard and presenting evidence in defendants favor. It does not imply admission by the defendant of the facts and causes of action of the plaintiff, because the codal section[45] requires the latter to adduce evidence in support of his allegations as an indispensable condition before final judgment could be given in his favor. Nor could it be interpreted as an admission by the defendant that the plaintiffs causes of action find support in the law or that the latter is entitled to the relief prayed for. [46] This is especially true with respect to a defendant who had filed his answer but had been subsequently declared in default for failing to appear at the trial since he has had an opportunity to traverse, via his answer, the material averments contained in the complaint. Such defendant has a better standing than a defendant who has neither answered nor appeared at trial.[47] The former should be allowed to reiterate all affirmative defenses pleaded in his answer before the Court of Appeals. Likewise, the Court of Appeals may review the correctness of the evaluation of the plaintiffs evidence by the lower court. It should also be pointed out that Aboitiz is not raising the issue of its entitlement to the limited liability rule for the first time on appeal thus, the respondent Court of Appeals may properly rule on the same. However, whether or not the respondent Court of Appeals erred in finding, upon review, that Aboitiz is entitled to the benefit of the limited liability rule is an altogether different matter which shall be discussed below. Rule on Limited Liability. The petitioners assert in common that the vessel M/V P. Aboitiz did not sink by reason of force majeure but because of its unseaworthiness and the concurrent fault and/or negligence of Aboitiz, the captain and its crew, thereby barring Aboitiz from availing of the benefit of the limited liability rule. The principle of limited liability is enunciated in the following provisions of the Code of Commerce: Art. 587. The shipagent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all the equipments and the freight it may have earned during the voyage.

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Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the captain referred to in Art. 587. Each co-owner may exempt himself from his liability by the abandonment, before a notary, of the part of the vessel belonging to him. Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as limited to the value of the vessel with all its appurtenances and the freightage served during the voyage. Article 837 applies the principle of limited liability in cases of collision, hence, Arts. 587 and 590 embody the universal principle of limited liability in all cases. In Yangco v. Laserna,[48] this Court elucidated on the import of Art. 587 as follows: "The provision accords a shipowner or agent the right of abandonment; and by necessary implication, his liability is confined to that which he is entitled as of right to abandon-the vessel with all her equipments and the freight it may have earned during the voyage. It is true that the article appears to deal only with the limited liability of the shipowners or agents for damages arising from the misconduct of the captain in the care of the goods which the vessel carries, but this is a mere deficiency of language and in no way indicates the true extent of such liability. The consensus of authorities is to the effect that notwithstanding the language of the aforequoted provision, the benefit of limited liability therein provided for, applies in all cases wherein the shipowner or agent may properly be held liable for the negligent or illicit acts of the captain."[49] "No vessel, no liability," expresses in a nutshell the limited liability rule. The shipowners or agents liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. The total destruction of the vessel extinguishes maritime liens because there is no longer any res to which it can attach.[50] This doctrine is based on the real and hypothecary nature of maritime law which has its origin in the prevailing conditions of the maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against these adverse conditions and to encourage shipbuilding and maritime commerce it was deemed necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance, if any. [51] Contrary to the petitioners theory that the limited liability rule has been rendered obsolete by the advances in modern technology which considerably lessen the risks involved in maritime trade, this Court continues to apply the said rule in appropriate cases. This is not to say, however, that the limited liability rule is without exceptions, namely: (1) where the injury or death to a passenger is due either to the fault of the shipowner, or to the concurring negligence of the shipowner and the captain;[52] (2) where the vessel is insured; and (3) in workmens compensation claims.[53]

We have categorically stated that Article 587 speaks only of situations where the fault or negligence is committed solely by the captain. In cases where the ship owner is likewise to be blamed, Article 587 does not apply. Such a situation will be covered by the provisions of the Civil Code on common carriers.[54] A finding that a fortuitous event was the sole cause of the loss of the M/V P. Aboitiz would absolve Aboitiz from any and all liability pursuant to Article 1734(1) of the Civil Code which provides in part that common carriers are responsible for the loss, destruction, or deterioration of the goods they carry, unless the same is due to flood, storm, earthquake, lightning, or other natural disaster or calamity. On the other hand, a finding that the M/V P. Aboitiz sank by reason of fault and/or negligence of Aboitiz, the ship captain and crew of the M/V P. Aboitiz would render inapplicable the rule on limited liability. These issues are therefore ultimately questions of fact which have been subject of conflicting determinations by the trial courts, the Court of Appeals and even this Court. In Civil Cases Nos. 82-2767-82-2770 (now G.R. No. 92735), after receiving Monarchs and Tabacaleras evidence, the trial court found that the complete loss of the shipment on board the M/V P. Aboitiz when it sank was neither due to a fortuitous event nor a storm or natural cause. For Aboitiz failure to present controverting evidence, the trial court also upheld petitioners allegation that the M/V P. Aboitiz was unseaworthy. [55] However, on appeal, respondent Court of Appeals exculpated Aboitiz from fault or negligence and ruled that: "x x x, even if she (M/V P. Aboitiz) was found to be unseaworthy, this fault (distinguished from civil liability) cannot be laid on the shipowners door. Such fault was directly attributable to the captain. This is so, because under Art. 612 of the Code of Commerce, among the inherent duties of a captain, are to examine the vessel before sailing and to comply with the laws on navigation."[56]; and that: "x x x although the shipowner may be held civilly liable for the captains fault x x x having abandoned the vessel in question, even if the vessel was unseaworthy due to the captains fault, Aboitiz is still entitled to the benefit under the rule of limited liability accorded to shipowners by the Code of Commerce."[57] Civil Case No. 138396 (now G.R. No. 95578) was similarly resolved by the trial court, which found that the sinking of the M/V P. Aboitiz was not due to an act of God or force majeure. It added that the evidence presented by the petitioner Equitable demonstrated the negligence of Aboitiz Shipping Corporation in the management and operation of its vessel M/V P. Aboitiz.
[58]

However, Aboitiz appeal was favorably acted upon by the respondent Court of Appeals which reiterated its ruling in G.R. No. 92735 that the unseaworthiness of the M/V P. Aboitiz was not a fault directly attributable to Aboitiz but to the captain, and that Aboitiz is entitled to the benefit of the limited liability rule for having abandoned its ship. [59]

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Finally, in Civil Case No. 138643 (now G.R. No. 94867), the trial court held that the M/V P. Aboitiz was not lost due to a fortuitous event or force majeure, and that Aboitiz had failed to satisfactorily establish that it had observed extraordinary diligence in the vigilance over the goods transported by it.[60] In CA-G.R. CV No. 04121, the Court of Appeals initially ruled against Aboitiz and found that the sinking of the vessel was due to its unseaworthiness and the failure of its crew and master to exercise extraordinary diligence. [61] Subsequently, however, Aboitiz petition before the Court of Appeals, docketed as CA-G.R. SP No. 20844 (now G.R. No. 94867) to annul and set aside the order of execution issued by the lower court was resolved in favor of Aboitiz. The Court of Appeals brushed aside the issue of Aboitiz negligence and/or fault and proceeded to allow the application of the limited liability rule "to accomplish the aims of justice." [62] It elaborated thus: "To execute the judgment in this case would prejudice the substantial right of other claimants who have filed suits to claim their cargoes that was lost in the vessel that sank and also against the petitioner to be ordered to pay more than what the law requires."[63] It should be pointed out that the issue of whether or not the M/V P. Aboitiz sank by reason of force majeure is not a novel one for that question has already been the subject of conflicting pronouncements by the Supreme Court. In Aboitiz Shipping Corporation v. Court of Appeals,[64] this Court approved the findings of the trial court and the appellate court that the sinking of the M/V P. Aboitiz was not due to the waves caused by tropical storm "Yoning" but due to the fault and negligence of Aboitiz, its master and crew.[65] On the other hand, in the later case of Country Bankers Insurance Corporation v. Court of Appeals ,[66] this Court issued a Resolution on August 28, 1991 denying the petition for review on the ground that the Court of Appeals committed no reversible error, thereby affirming and adopting as its own, the findings of the Court of Appeals that force majeure had caused the M/V P. Aboitiz to founder. In view of these conflicting pronouncements, we find that now is the opportune time to settle once and for all the issue of whether or not force majeure had indeed caused the M/V P. Aboitiz to sink. After reviewing the records of the instant cases, we categorically state that by the facts on record, the M/V P. Aboitiz did not go under water because of the storm "Yoning." It is true that as testified by Justo Iglesias, meteorologist of Pag-Asa, during the inclusive dates of October 28-31, 1980, a stormy weather condition prevailed within the Philippine area of responsibility, particularly along the sea route from Hong Kong to Manila, because of tropical depression "Yoning".[67] But even Aboitiz own evidence in the form of the marine protest filed by Captain Racines affirmed that the wind force when the M/V P. Aboitiz foundered on October 31, 1980 was only ten (10) to fifteen (15) knots which, under the Beaufort Scale of Wind, falls within scale No. 4 that describes the wind velocity as "moderate breeze," and characterizes the waves as "small x x x becoming longer, fairly frequent white horses."[68] Captain Racines also testified in open court that the ill-fated M/V P. Aboitiz was two hundred (200) miles away from storm "Yoning" when it sank.[69]

The issue of negligence on the part of Aboitiz, and the captain and crew of the M/V P. Aboitiz has also been subject of conflicting rulings by this Court. In G.R. No. 100373, Country Bankers Insurance Corporation v. Court of Appeals, this Court found no error in the findings of the Court of Appeals that the M/V P. Aboitiz sank by reason of force majeure, and that there was no negligence on the part of its officers and crew. In direct contradiction is this Courts categorical declaration in Aboitiz Shipping Corporation v. Court of Appeals,[70] to wit: "The trial court and the appellate court found that the sinking of the M/V P. Aboitiz was not due to the waves caused by tropical storm "Yoning" but due to the fault and negligence of petitioner, its master and crew. The court reproduces with approval said findings x x x."[71] However, in the subsequent case of Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd. ,[72] this Court exculpated Aboitiz from fault and/or negligence while holding that the unseaworthiness of the M/V P. Aboitiz was only attributable to the negligence of its captain and crew. Thus, "On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on petitioners lap, absent a factual basis for such conclusion. The unseaworthiness found in some cases where the same has been ruled to exist is directly attributable to the vessels crew and captain, more so on the part of the latter since Article 612 of the Code of Commerce provides that among the inherent duties of a captain is to examine a vessel before sailing and to comply with the laws of navigation. Such a construction would also put matters to rest relative to the decision of the Board of Marine Inquiry. While the conclusion therein exonerating the captain and crew of the vessel was not sustained for lack of basis, the finding therein contained to the effect that the vessel was seaworthy deserves merit. Despite appearances, it is not totally incompatible with the findings of the trial court and the Court of Appeals, whose finding of "unseaworthiness" clearly did not pertain to the structural condition of the vessel which is the basis of the BMIs findings, but to the condition it was in at the time of the sinking, which condition was a result of the acts of the captain and the crew."[73] It therefore becomes incumbent upon this Court to answer with finality the nagging question of whether or not it was the concurrent fault and/or negligence of Aboitiz and the captain and crew of the ill-fated vessel that had caused it to go under water. Guided by our previous pronouncements and illuminated by the evidence now on record, we reiterate our findings in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd. [74], that the unseaworthiness of the M/V P. Aboitiz had caused it to founder. We, however, take exception to the pronouncement therein that said unseaworthiness could not be attributed to the ship owner but only to the negligent acts of the captain and crew of the M/V P. Aboitiz. On the matter

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of Aboitiz negligence, we adhere to our ruling in Aboitiz Shipping Corporation v. Court of Appeals,[75] that found Aboitiz, and the captain and crew of the M/V P. Aboitiz to have been concurrently negligent. During the trial of Civil Case Nos. 82-2767-82-2770 (now G.R. No. 92735), petitioners Monarch and Tabacalera presented a survey from Perfect Lambert, a surveyor based in Hong Kong that conducted an investigation on the possible cause of the sinking of the vessel. The said survey established that the cause of the sinking of the vessel was the leakage of water into the M/V P. Aboitiz which probably started in the forward part of the No. 1 hull, although no explanation was proffered as to why the No. 2 hull was likewise flooded. Perfect Lambert surmised that the flooding was due to a leakage in the shell plating or a defect in the water tight bulk head between the Nos. 1 and 2 holds which allowed the water entering hull No.1 to pass through hull No. 2. The surveyor concluded that whatever the cause of the leakage of water into these hulls, the seaworthiness of the vessel was definitely in question because the breaches of the hulls and serious flooding of the two cargo holds occurred simultaneously in seasonal weather.[76] We agree with the uniform finding of the lower courts that Aboitiz had failed to prove that it observed the extraordinary diligence required of it as a common carrier. We therefore reiterate our pronouncement in Aboitiz Corporation v. Court of Appeals[77] on the issue of Aboitiz liability in the sinking of its vessel, to wit: "In accordance with Article 1732 of the Civil Code, the defendant common carrier from the nature of its business and for reasons of public policy, is bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by it according to all circumstances of the case. While the goods are in the possession of the carrier, it is but fair that it exercise extraordinary diligence in protecting them from loss or damage, and if loss occurs, the law presumes that it was due to the carriers fault or negligence; that is necessary to protect the interest of the shipper which is at the mercy of the carrier x x x. In the case at bar, the defendant failed to prove hat the loss of the subject cargo was not due to its fault or negligence."[78] The failure of Aboitiz to present sufficient evidence to exculpate itself from fault and/or negligence in the sinking of its vessel in the face of the foregoing expert testimony constrains us to hold that Aboitiz was concurrently at fault and/or negligent with the ship captain and crew of the M/V P. Aboitiz. This is in accordance with the rule that in cases involving the limited liability of shipowners, the initial burden of proof of negligence or unseaworthiness rests on the claimants. However, once the vessel owner or any party asserts the right to limit its liability, the burden of proof as to lack of privity or knowledge on its part with respect to the matter of negligence or unseaworthiness is shifted to it.[79] This burden, Aboitiz had unfortunately failed to discharge. That Aboitiz failed to discharge the burden of proving that the unseaworthiness of its vessel was not due to its fault and/or negligence should not however mean that the limited liability rule will not be applied to the present cases. The peculiar circumstances

here demand that there should be no strict adherence to procedural rules on evidence lest the just claims of shippers/insurers be frustrated. The rule on limited liability should be applied in accordance with the latest ruling in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd.,[80] promulgated on January 21, 1993, that claimants be treated as "creditors in an insolvent corporation whose assets are not enough to satisfy the totality of claims against it."[81] To do so, the Court set out in that case the procedural guidelines: "In the instant case, there is, therefore, a need to collate all claims preparatory to their satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant can be given precedence over the others by the simple expedience of having completed its action earlier than the rest. Thus, execution of judgment in earlier completed cases, even those already final and executory must be stayed pending completion of all cases occasioned by the subject sinking. Then and only then can all such claims be simultaneously settled, either completely or pro-rata should the insurance proceeds and freightage be not enough to satisfy all claims. "x x x............x x x............x x x. " In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending freightage should now be deposited in trust. Moreover, petitioner should institute the necessary limitation and distribution action before the proper admiralty court within 15 days from finality of this decision, and thereafter deposit with it the proceeds from the insurance company and pending freightage in order to safeguard the same pending final resolution of all incidents, for final pro-rating and settlement thereof."[82] (Underscoring supplied.) There is no record that Aboitiz has instituted such action or that it has deposited in trust the insurance proceeds and freightage earned. The pendency of the instant cases before the Court is not a reason for Aboitiz to disregard the aforementioned order of the Court. In fact, had Aboitiz complied therewith, even these cases could have been terminated earlier. We are inclined to believe that instead of filing the suit as directed by this Court, Aboitiz tolerated the situation of several claimants waiting to get hold of its insurance proceeds, which, if correctly handled must have multiplied in amount by now. By its failure to abide by the order of this Court, it had caused more damage to the claimants over and above that which they have endured as a direct consequence of the sinking of the M/V P. Aboitiz. It was obvious that from among the many cases filed against it over the years, Aboitiz was waiting for a judgment that might prove favorable to it, in blatant violation of the basic provisions of the Civil Code on abuse of rights. Well aware of the 110 claimants against it, Aboitiz preferred to litigate the claims singly rather than exert effort towards the consolidation of all claims. Consequently, courts have arrived at conflicting decisions while claimants waited over the years for a resolution of any of the cases that

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would lead to the eventual resolution of the rest. Aboitiz failed to give the claimants their due and to observe honesty and good faith in the exercise of its rights.[83] Aboitiz blatant disregard of the order of this Court in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd. [84] cannot be anything but willful on its part. An act is considered willful if it is done with knowledge of its injurious effect; it is not required that the act be done purposely to produce the injury.[85] Aboitiz is well aware that by not instituting the said suit, it caused the delay in the resolution of all claims against it. Having willfully caused loss or injury to the petitioners in a manner that is contrary to morals, good customs or public policy, Aboitiz is liable for damages to the latter.[86] Thus, for its contumacious act of defying the order of this Court to file the appropriate action to consolidate all claims for settlement, Aboitiz must be held liable for moral damages which may be awarded in appropriate cases under the Chapter on human relations of the Civil Code (Articles 19 to 36).
[87]

Crossfield & OBrien for appellants. Lawrence & Ross for appellees. Malcolm, J.: On September 13, 1914, the British steamer Bengloe owned by W. Thompson & co., while en route from Manila to European ports, stranded on the Mayone shoal in the Sulu sea some twenty-five miles from Brooks Point on the Island of Palawan. On the same day, the first and third officers of the vessel, with four seamen, were sent in search of assistance. No word having been received from these men, on 22 September, 1914, another party, consisting of the second officer and some members of the crew, was dispatched on a similar mission. On October 1, the captain later arrived at Puerto Princesa, Palawan. While at that place, the captain sent the following telegram to the agents of the vessel at Manila: Bengloe abandoned last Thursday eighteen days on Corral Reef no assistance whatever to hand ship dangerous position settling down forward and listed heavily to Port Cargo in aft holds possible to salve. Crew all safe. Proceeding Manila per Panglima due fifteenth advise Leith. (Sgd.) Guy, Master. At this time, Jose Fernandez, O. N. Holmsen, and M. A. Macleod, now plaintiffs, were residents of Palawan. On learning of the abandonment of the Bengloe by her crew, these gentlemen formed a partnership, with a capital of P1,500, for the purpose of salving the vessel and cargo. They hired the launch Florence of between thirty and forty tons capacity from the provincial authorities of Puerto Princesa, and with a number of laborers proceeded to the wreck to ascertain its condition, where they arrived on October 7. They immediately took possession of the vessel and removed 14.937 kilos of copra and certain furniture and effects, of the approximate value of P2,500. Holmes and Fernandez proceeded with the launch to Brooks Point, the copra and other effects were stored in the Government warehouse. The copra being perishable was later sold by an order of court and the proceeds amounting to P2,051.63 deposited with the clerk of court. The other articles were left in the custody of the provincial treasurer of Palawan. Holmsen and Fernandez began negotiations with various owners of vessels in Manila, including the Neil Macleod and one of the Pujalte boats. Neither of these boats, however, was ever chartered or placed at the disposition of the plaintiffs. In the meantime, the London Salvage Association acting in the interest of the underwriters of the ship and the cargo, and with the consent of the ships agents, engaged Ker & Co. to take charge of the salvage operations. The latter firm in its turn employed William Swan, an engineer and marine surveyor, to conduct the work. Swan left Manila on the Coast Guard Cutter Polillo on October 6 for the scene of the wreck. On the way there, the Polillo intercepted the Paglima, which had the captain and members of the crew of the Bengloe on board, and took them back to the wreck. Swan, the captain of the Bengloe, and their assistants arrived at the wreck on

On account of Aboitiz refusal to satisfy petitioners claims in accordance with the directive of the Court in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd., it acted in gross and evident bad faith. Accordingly, pursuant to Article 2208 of the Civil Code, [88] petitioners should be granted attorneys fees. WHEREFORE, the petitions in G.R. Nos. 92735, 94867, and 95578 are DENIED. The decisions of the Court of Appeals in CA-G.R. No. SP-17427 dated March 29, 1990, CA-G.R. SP No. 20844 dated August 15, 1990, and CA-G.R. CV No. 15071 dated August 24, 1990 are AFFIRMED with the MODIFICATION that respondent Aboitiz Shipping Corporation is ordered to pay each of the respective petitioners the amounts of P100,000.00 as moral damages and P50,000.00 as attorneys fees, and treble the cost of suit. Respondent Aboitiz Shipping Corporation is further directed to comply with the Order promulgated by this Court on January 21, 1993 in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd., G.R. No. 100446, January 21, 1993, to (a) institute the necessary limitation and distribution action before the proper Regional Trial Court, acting as admiralty court, within fifteen (15) days from the finality of this decision, and (b) thereafter to deposit with the said court the insurance proceeds from the loss of the vessel, M/V P. Aboitiz, and the freightage earned in order to safeguard the same pending final resolution of all incidents relative to the final pro-rating thereof and to the settlement of all claims. SO ORDERED. September 26, 1918 G.R. No. 13229 JOSE FERNANDEZ, O. N. HOLMSEN, and M. A. MACLEOD, plaintiffsappellants, vs. THOMPSON & CO., W.F. STEVENSON & CO., KER & CO., Captain GUY, Captain SWAN, JOHN DOE, RICHARD ROE and HENRY JONES, defendantsappellees.

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October 9, that is, two days after the arrival of Fernandez, Holmsen, and Macleod, and after the copra and other effects had been removed. Macleod and the two laborers found on board were shown scant hospitality by the second party, and were pointedly given to understand that their presence was not desired. Against his vigorous protest, MaCleod was finally forced to leave the vessel by the captain of the Polillo and a lieutenant of the Constabulary sent to the wreck with constabulary soldiers to protect it from plunder. When the other plaintiffs Holmsen and Fernandez, returned on the launch, they were prevented from taking any further part in the salvage operations. Fernandez, Holmsen, and Macleod began action in the Court of First Instance of the city of Manila to recover from the owners of the Bengloe and other parties the sum of P179,780, claimed to be due as compensation for the salvage of merchandise and effects of the value of P2,500 from the steamship Bengloe and as damages because of having been forcibly deprived of the possession of the steamship and thereby prevented from prosecuting salvage operations. After trial of the case, the lower court found the facts practically as above stated. Judgment was rendered for the plaintiffs and against the defendants for the sum of P1,200 with interest thereon at the rate of 6 per cent per annum from November 24, 1914, with costs. The amount of this judgment was to paid over to the plaintiffs by the clerk of court out of the funds deposited with him in the present case. The defendants originally claimed the sole and exclusive possession of the wreck on the ground that they had not abandoned it but only left to seek assistance. The trial court, however, found that the appearances justified the conclusion that the Bengloe was abandoned by the defendants on October 7, 1914, and that the plaintiffs commenced the salvage operations in entire good faith. This finding of fact, excluding for the time being plaintiffs contention that a larger award should be given, cannot be successfully disputed on appeal, although appellees to emphasize their thought do make use of such expressive words as vendetta with legitimate salvors, raids such as this, their conduct in plundering a stranded ship, partly looted, spoliation, and entered upon a purely speculative adventure. The trial court further found that the equipment of the plaintiffs was utterly inadequate for the task they endeavored to undertake, and that they had no right to insist upon retaining possession of the wreck as against the representative of the owners and underwriters, who had superior equipment and ample financial resources. It is around this last finding that most of the controversy now centers. The facts, regarding which there can be little or no dispute, and plaintiffs three assignment of error, present for resolution the following interrogatories: had the plaintiffs adequate equipment to effect the salvage of the ship and cargo? Had plaintiffs the right to insist upon retaining possession of the Bengloe and her cargo for the purpose of salvage as against the salvors employed by the owners and underwriters?

Was P1,200 adequate compensation for the property saved by the plaintiff? The only equipment actually in the possession of the plaintiffs for salving the Bengloe and he cargo was a small launch and some baskets and sacks. This was the best salvage equipment available in Puerto Princesa on the Island of Palawan. That such equipment was inadequate for the salvage of a vessel valued at P100,000, laden with sugar, copra, and bunker coal of a value of P352,500, perilously situated, seems undeniable. But plaintiffs also made futile efforts, presumably in good faith, to acquire adequate salvage equipment. We thus have presented this unique situation: Wellintentioned men with inadequate equipment are first on the scene of a wreck, and while in technical possession, are driven off and operations begun by a second salvage party under an expert superintendent and with adequate equipment. The claim of plaintiffs for P170,000 as damages must then rest upon what they might have done had they been left in undisturbed possession of the vessel. No evidence was submitted, and in fact no satisfactory evidence could have been presented, to show that the vessel could have been saved and the cargo salved with the small launch at plaintiffs disposal. Nor can we do more than speculate as to the value of plaintiffs services if they had been permitted to help and the two parties had worked together. The services rendered by the plaintiffs contributed immediately to the preservation of a small amount of property on the stranded vessel, but as an actual fact, their further exertions, however meritorious they were intended to be were not successful in any degree and cannot be compensated in damages. Appellants rely on the following proposition: Parties taking possession of an abandoned vessel or cargo have a right to retain it until the salvage is completed, and no other person has the right to interfere with them, provided they are able to effect the salvage, and are conducting the business with fidelity and vigor. But if their own means are inadequate they are bound to accept additional assistance, if offered. Those beginning a salvage service, and in the successful prosecution of it, are entitled to be regarded as meritorious salvors of whatever is preserved, when wrongfully interrupted in the work by others who complete the salvage. (35 Cyc., 744) Appellee in reply point out the very important qualification of the rule, namely, provided they are able to effect the salvage and are conducting the business with fidelity and vigor. Thus, in a Federal case, it was decided that the first set of salvors had no right to exclude the second set from saving the merchandise in the vessel, the first set not having at the time the means to save it. (The Concordia [1855], 6 Fed. Cases, 3092). We must answer the first two questions in the negative with the result that the second and third assignments of error are resolved against appellants. There remains to be decided whether P1,200 is adequate salvage compensation for the property saved by the plaintiffs.

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The object of the award and the circumstances determining the amount of compensation in salvage claims have been authoritatively set out in a decision of the United States Supreme Court in the following language: Nothing remains to be considered but the question whether the amount awarded in the court below to the libelants was correct. Steam vessels are always considered as entitled to a liberal reward, not only because the service is usually rendered by a costly instrumentality, but because the service is in general rendered with greater promptitude and is of a more effectual character. Courts of admiralty usually consider the following circumstances as the main ingredients in determining the amount of the reward to be decreed for a salvage service: (1) The labor expended by the salvors in rendering the salvage service. (2) The promptitude, skill, and energy displayed in rendering the service and saving the property. (3) The value of the property employed by the salvors rendering the service, and the danger to which such property was exposed. (4) The risk incurred by the salvors in securing the property from the impending peril. (5) The value of the property saved. (6) The degree of danger from which the property was rescued. Compensation as salvage is not viewed by the admiralty courts merely as pay, on the principle of a quantum meruit or as a remuneration pro opere et labore, but as a reward given for perilur services, voluntarily rendered, and as an inducement to seamen and others to embark in such undertakings to save life and property. (Wms. & Bruce, Adm. Prac., 116; 2 Pars. Ship., 292.) Public policy encourages the hardy and adventurous mariner to engage in these laborious and sometimes dangerous enterprises, and with a view to withdraw from him every temptation to embezzlement and dishonesty, the law allows him, in case he is successful, a liberal compensation. Cromwell vs. The Island City, 1 Cliff., 228. (The Blackwall vs. Sancelito Tug Company [1870], 10 Wall., 1. See further G. Urrutia & Co. vs. Pasig Steamer and Lighter Co. [1912], 22 Phil., 330; Erlanger & Galinger vs. Swedish East Asiatic Co., Ltd. [1916], 34 Phil. Rep., 178; and Manila Railroad Co. vs. Macondray & Co. [1918], 37 Phil. Rep., 850.) The amount of the property saved was valued at approximately P2,500. Plaintiffs incurred expenditures in the sum of P972.95 in the salvage of the copra and other effects and in making arrangements for the salvage of the remainder of the cargo. The quantum for salvage allowed by the trial court of P1,200 was therefore approximately one-half of the value of this property and gave plaintiffs, in addition to their expenses, only a little more than P200 as a bounty. Compensation for salvage services necessarily depends on the circumstances of the particular case. In this instance, we are inclined to agree with appellants that a reasonable, and at the same time liberal award, for their services as meritorious salvors, would be P2,000.

Judgment is modified so that plaintiffs shall shave and recover from the defendants, the sum of P2,000, with interest thereon at 6 per cent per annum from November 24, 1914, until paid, with the costs of both instances against defendants. So ordered. Arellano, C.J., Johnson, Araullo and Avancea, JJ., concur. STREET, J., concurring: I concur; and in order that the decision may not be interpreted as declaring a rule of compensation more favorable to salvors that is generally sanctioned by the decided cases, I will observe that this case is obviously determined on its own facts, and the circumstance that the plaintiffs were mistreated and practically ejected from the Bengloe by the defendants has caused the court to be more liberal as to the amount of compensation allowed than it otherwise probably would have been.

G.R. No. L-13695 October 18, 1921 STANDARD OIL COMPANY OF NEW YORK, plaintiff-appellee, vs. MANUEL LOPEZ CASTELO, defendant-appellant. Gabriel La O for appellant. Lawrence and Ross for appellee. STREET, J.: By contract of character dated February 8, 1915, Manuel Lopez Castelo, as owner, let the small interisland steamer Batangueo for the term of one year to Jose Lim Chumbuque for use in the conveying of cargo between certain ports of the Philippine Islands. In this contract it was stipulated that the officers and crew of the Batangueoshould be supplied by the owner, and that the charterer should have no other control over the captain, pilot, and engineers than to specify the voyages that they should make and to require the owner to discipline or relieve them as soon as possible in case they should fail to perform the duties respectively assigned to them. While the boat was being thus used by the charterer in the interisland trade, the standard Oil Company delivered to the agent of the boat in Manila a quantity of petroleum to be conveyed to the port of Casiguran, in the Province of Sorsogon. For this consignment a bill of lading of the usual form was delivered, with the stipulation that freight should be paid at the destination. Said bill of lading contained no provision with respect to the storage of the petroleum, but it was in fact placed upon the deck of the ship and not in the hold. While the boat was on her way to the port mentioned, and off the western coast of Sorsogon, a violent typhoon passed over that region, and while the storm was at its height the captain was compelled for the safety

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of all to jettison the entire consignment of petroleum consisting of two hundred cases. When the storm abated the ship made port, and thirteen cases of the petroleum were recovered, but the remainder was wholly lost. To recover the value of the petroleum thus jettisoned but not recovered, the present action was instituted by the Standard Oil Company against the owner of the ship in the Court of First Instance of Manila, where judgment was rendered in favor of the plaintiff. From this judgment the defendant appealed. No question is made upon the point that the captain exercised proper discretion in casting this petroleum overboard, as a step necessary to the salvation of the ship; and in fact it appears that even after the vessel was thus eased, she was with difficulty prevented from capsizing, so great was the intensity of the storm. The first question for discussion is whether the loss of this petroleum was a general average loss or a particular less to be borne solely by the owner of the cargo. Upon this point it will be observed that the cargo was carried upon deck; and it is a general rule, both under the Spanish Commercial Code and under the doctrines prevailing in the courts of admiralty of England America, as well as in other countries, that ordinarily the loss of cargo carried on deck shall not be considered a general average loss. This is clearly expressed in Rule I of the York-Antwerp Rules, as follows: "No jettison of deck cargo shall be made good as general average." The reason for this rule is found in the fact that deck cargo is in an extra-hazardous position and, if on a sailing vessel, its presence is likely to obstruct the free action of the crew in managing the ship. Moreover, especially in the case of small vessels, it renders the boat top-heavy and thus may have to be cast overboard sooner than would be necessary if it were in the hold; and naturally it is always the first cargo to go over in case of emergency. Indeed, in subsection 1 of article 815 of the Code of Commerce, it is expressly declared that deck cargo shall be cast overboard before cargo stowed in the hold. But this rule, denying deck cargo the right to contribution by way of general average in case of jettison, was first mad in the days of sailing vessels; and with the advent of the steamship as the principal conveyer of cargo by sea, it has been felt that the reason for the rule has become less weighty, especially with reference to coastwise trade; and it is now generally held that jettisoned goods carried on deck, according to the custom of trade, by steam vessels navigating coastwise and inland waters, are entitled to contribution as a general average loss (24 R. C. L., 1419). Recognition is given to this idea in two different articles in the Spanish Code of Commerce. In the first it is in effect declared that, if the marine ordinances allow cargo to the laden on deck in coastwise navigation, the damages suffered by such merchandise shall not be dealt with as particular average (art. 809 [3], Comm. Code); and in the other it is stated that merchandise laden on the upper deck of the vessel shall contribute in the general average if it should be saved; but that there shall be no right to indemnity if it should be lost by reason of being jettisoned for the general safety, except when the marine ordinances allow its shipment in this manner in coastwise navigation (art. 855, Comm. Code). The Marine Regulations now in force in these Islands contain provisions recognizing the right of vessels engaged in the interisland trade

to carry deck cargo; and express provision is made as to the manner in which it shall be bestowed and protected from the elements (Phil. Mar. Reg. [1913], par 23). Indeed, there is one commodity, namely, gasoline, which from its inflammable nature is not permitted to be carried in the hold of any passenger vessel, though it may be carried on the deck if certain precautions are taken. There is no express provision declaring that petroleum shall be carried on deck in any case; but having regard to its inflammable nature and the known practices of the interisland boats, it cannot be denied that this commodity also, as well as gasoline, may be lawfully carried on deck in our coatwise trade. The reason for adopting a more liberal rule with respect to deck cargo on vessels used in the coastwise trade than upon those used for ordinary ocean borne traffic is to be found of course in the circumstance that in the coastwise trade the boats are small and voyages are short, with the result that the coasting vessel can use more circumspection about the condition of the weather at the time of departure; and if threatening weather arises, she can often reach a port of safety before disaster overtakes her. Another consideration is that the coastwise trade must as a matter of public policy be encouraged, and domestic traffic must be permitted under such conditions as are practically possible, even if not altogether ideal. From what has been said it is evident that the loss of this petroleum is a general and not a special average, with the result that the plaintiff is entitled to recover in some way and from somebody an amount bearing such proportion to its total loss as the value of both the ship and the saved cargo bears to the value of the ship and entire cargo before the jettison was effected. Who is the person, or persons, who are liable to make good this loss, and what are the conditions under which the action can be maintained? That the owner of the ship is a person to whom the plaintiff in this case may immediately look for reimbursement to the extent above stated is deducible not only from the general doctrines of admiralty jurisprudence but from the provisions of the Code of Commerce applicable to the case. It is universally recognized that the captain is primarily the representative of the owner; and article 586 of the Code of Commerce expressly declares that both the owner of the vessel and the naviero, or charterer, shall be civil liable for the acts of the master. In this connection, it may be noted that there is a discrepancy between the meaning of naviero, in articles 586 of the Code of Commerce, where the word is used in contradistinction to the term "owner of the vessel" (propietario), and in article 587 where it is used alone, and apparently in a sense broad enough to include the owner. Fundamentally the word "naviero" must be understood to refer to the person undertaking the voyage, who in one case may be the owner and in another the charterer. But this is not vital to the present discussion. The real point to which we direct attention is that, by the express provision of the Code, the owner of the vessel is civilly liable for the acts of the captain; and he can only escape from this civil liability by abandoning his property in the ship and any freight that he may have earned on the voyage (arts. 587, 588, Code of Comm.). Now, by article 852 of the Code of Commerce the captain is required to initiate the proceedings for the adjustment, liquidation, and distribution

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of any gross average to which the circumstances of the voyage may have given origin; and it is therefore his duty to take the proper steps to protect any shipper whose goods may have been jettisoned for the general safety. In ordinary practice this, we supposed, would be primarily accomplished by requiring the consignees of other cargo, as a condition precedent to the delivery of their goods to them, to give a sufficient bond to respond for their proportion of the general average. But it is not necessary here to inquire into details. It is sufficient to say that the captain is required to take the necessary steps to effect the adjustment, liquidation, and distribution of the general average. In the case before us the captain of the vessel did not take those steps; and we are of the opinion that the failure of the captain to take those steps gave rise to a liability for which the owner of the ship must answer. But it is said and the entire defense seems to be planted upon this proposition that the liquidation of the general average is, under article 852 and related provisions, a condition precedent to the liability of the defendant, and that at any rate the defendant, as owner of the ship, should only be held liable for his proportion of the general average. It is also suggested that if the plaintiff has any right of action at all upon the state of facts here presented, it is against the captain, who has been delinquent in performing the duty which the law imposes on him. This argument involves, we think, a misconception of the true import of the provisions relating to the adjustment and liquidation of general average. Clearly, for one thing, those provisions are intended to supply the shipowner, acting of cause in the person of the captain, with a means whereby he may escape bearing the entire burden of the loss and may distribute it among all the persons who ought to participate in sharing it; but the making of the liquidation is not a condition precedent to the liability of the shipowner of the shipper whose property has been jettisoned. It is true that if the captain does not comply with the article relating to the adjustment, liquidation, and distribution of the general average, the next article (852) gives to those concerned whether shipowner (naviero) or shipper the right to maintain an action against the captain for indemnification for the loss; but the recognition of this right of action does not by any means involve the suppression of the right of action which is elsewhere recognized in the shipper against the ship's owner. The shipper may in our opinion go at once upon the owner and the latter, if so minded, may have his recourse for indemnization against his captain. In considering the question now before us it is important to remember that the owner of the ship ordinarily has vastly more capital embarked upon a voyage than has any individual shipper of cargo. Moreover, the owner of the ship, in the person of the captain, has complete and exclusive control of the crew and of the navigation of the ship, as well as of the disposition of the cargo at the end of the voyage. It is therefore proper that any person whose property may have been cast overboard by order of the captain should have a right of action directly against the ship's owner for the breach of any duty which the law may have imposed on the captain with respect to such cargo. To adopt the interpretation of the law for which the appellant contends would place the shipowner in a position to escape all responsibility for a general average of this character by means

of the delinquency of his own captain. This cannot be permitted. The evident intention of the Code, taken in all of its provisions, is to place the primary liability upon the person who has actual control over the conduct of the voyage and who has most capital embarked in the venture, namely, the owner of the ship, leaving him to obtain recourse, as it is very easy to do, from other individuals who have been drawn into the venture as shippers. It results that the plaintiff is entitled to recover in this action; and the only additional point to be inquired into is the amount that should be awarded. In this connection it appears that the total value of the jettisoned cargo, belonging partly to the plaintiff to another shipper, was P880.35, of which P719.95 represented the value of the plaintiff's petroleum. Upon the apportionment of this total loss among the different interests involved, to wit, value of ship, value of cargo, and the earned but lost freight, it appears that the amount of the loss apportionable to the plaintiff is P11.28. Deducting this from the value of the petroleum, we have as a result, the amount of P708.67, which is the amount for which judgment should be given. Accordingly, modifying the judgment appealed from to this extent, we affirm the same, with costs. So ordered. Johnson and Villamor, JJ., concur. Mapa, C.J., concurs in the result.

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