G.R. No.

L-10195 December 29, 1916

YU CON, plaintiff-appellee, vs. GLICERIO IPIL, NARCISO LAURON, and JUSTO SOLAMO, defendants-appellants.

ARAULLO, J.:

The purpose of the action brought in these proceedings is to enable the plaintiff to recover from the defendants jointly and
severally the sum of P450, which had been delivered by the plaintiff to the first and third of the above-named defendants,
master and supercargo, respectively, of a banca named Maria belonging to the second defendant, to be carried, together
with various merchandise belonging to the plaintiff, from the port of Cebu to the town of Catmon of the Province of Cebu. By
virtue of the contract executed between the said second defendant and the plaintiff, the money and merchandise were to be
transported by the said craft between the points above-named in consideration of the payment of a certain sum for each
voyage. The money disappeared from said craft during the night of October 18, 1911, while it was anchored in the port of
Cebu and ready to sail for its destination, Catmon, and was not afterwards found. The plaintiff based his action on the charge
that the disappearance of said sum was due to the abandonment, negligence, or voluntary breach, on the part of the
defendants, of the duty they had in respect to the safe-keeping of the aforementioned sum.

The defendants, besides denying the allegations of the complaint, pleaded in special defense that the plaintiff, at his own
expense and under his exclusive responsibility, chartered the said banca, the property of the defendant Lauron, for the fixed
period of three days, at the price of P10 per diem, and that, through the misfortune, negligence, or abandonment of the
plaintiff himself, the loss complained of occurred, while said banca was at anchor in the port of Cebu, and was caused by
theft committed by unknown thieves. They further alleged that said defendant Lauron, the owner of the banca merely placed
this craft at the disposal of the plaintiff for the price and period agreed upon, and did not go with the banca on its voyage from
Catmon to Cebu. As a counterclaim, the defendants also asked that the plaintiff be ordered to pay the freight agreed upon,
which had not yet been paid, amounting to P80, plus the sum of P70, as an indemnity for the losses and damages caused
them by the attachment of the banca, issued at the instance of the plaintiff upon filing his complaint. They also prayed for the
additional sum of P100, for the deterioration of the said banca, and also that of P200 for other deterioration suffered by the
same since November, 1911, and which had not bee paid for. Finally, the defendants asked to be absolved from the
complaint.

Before commencing the hearing of this case, the defendants made a verbal motion asking that the plaintiff be declared in
default, with respect to the counterclaim filed by them in their answer. On the same date, the plaintiff presented his answer to
said counter claim, denying each and all of the allegations thereof and of the defendants' special defense. The
aforementioned motion was overruled by the court, and the defendants excepted.

At the termination of the trial, the court, in view of the evidence adduced, held that there was no room to doubt that the sole
cause of the disappearance of the money from the said banca was the negligence of the master and the supercargo, the
defendants Ipil and Solamo, respectively, and that the defendant Narciso Lauron was responsible for that negligence, as
owner of the banca, pursuant to articles 589, 587, and 618 of the Code of Commerce, the plaintiff therefore being entitled to
recover the amount lost. Judgment was rendered on April 20, 1914, in favor of the plaintiff and against the defendants jointly
and severally for the sum of P450, with interest thereon at the rage of 6 per cent per annum from the date of filing of the
complaint, October 24, 1911, with costs. The plaintiff was absolved from the defendant's counterclaim. From this judgment
the defendants excepted and at the same time moved for a new trial. Their motion was denied, to which ruling they also
excepted, and, through the proper bill of exceptions, entered and appeal to this Supreme Court. In their brief they allege that
the trial court erred:

1. In applying articles 586, 587, and 618 of the Code of Commerce in favor of the plaintiff;
2. In overruling the motion for default presented by the defendants and in sentencing the defendants jointly and severally to
pay the plaintiff the amount mentioned in the judgment; and
3. In absolving the plaintiff from the defendant's counterclaim.

The evidence shows that the plaintiff Yu Con, a merchant and a resident of the town of San Nicolas, of the city of Cebu,
engaged in the sale of cloth and domestic articles and having a share in a shop, or small store, situated in the town of
Catmon, of said province, had several times chartered from the defendant Narciso Lauron, a banca named Maria belonging
to the latter, of which Glicerio Ipil was master and Justo Solamo, supercargo, for the transportation of certain merchandise
and some money to and from the said town and the port of Cebu, that, on or about the 17th of October, 1911, the plaintiff
chartered the said banca from the defendant Lauron for the transportation of various merchandise from the port of Cebu to
Catmon, at the price of P45 for the round trip, which merchandise was loaded on board the said craft which was then at
anchor in front of one of the graded fills of the wharf of said port; that in the afternoon of the following day, he delivered to the
other two defendants, Ipil, and Solamo, master and supercargo, respectively, of the afore-named banca, the sum of P450,
which was in a trunk belonging to the plaintiff and was taken charge of by said two defendants, who received this money
from the plaintiff, for the purpose of its delivery to the latter's shop in Catmon for the purchase of corn in this town; that while
the money was still in said truck abroad the vessel, on the night of the said 18th of October, the time scheduled for the
departure of the Maria from the port of Cebu, said master and said supercargo transferred the P450 from the plaintiff's trunk,
where it was, to theirs, which was in a stateroom of the banca, from which stateroom both the trunk and the money
disappeared during that same night, and that the investigations, made to ascertain their whereabouts, produced no result.

The facts are also admitted by the aforementioned master and supercargo, two of the defendants, that they received from
the plaintiff said P450, which sum was in the latter's own trunk which was placed outside the stateroom of the banca, for the
reason, as they said, that there was no room for it inside the stateroom; that these defendants therefore transferred said
money to their trunk, which was inside the stateroom, and that this trunk and the P450 therein contained disappeared from
the boat during the night of that same day; that said sum had not been found or returned to the plaintiff; that the plaintiff,
being on the banca in the afternoon of that day, when his trunk containing the P450 was carried aboard, and seeing that said
two defendants, who had the key of the trunk, has removed said sum to their trunk inside the stateroom, charged them to
take special care of the money; that the master Ipil assured the plaintiff that there was no danger of the money being lost;
and that, final, during the night in question, both the master and the supercargo and four cabin-boys were aboard the banca.

It was likewise proven by the affidavits made by the master Ipil, the supercargo Solamo, and the cabin-boys of said vessel,
Juan Quiamco and Gabriel Basang, before the provincial fiscal of Cebu on the day following the commission of the theft,
which affidavits were presented at the trial as Exhibits A, 3, 4, and 5, and by the testimony given at the trial by the defendants
Ipil and Solamo, that both said cabin-boys and the other two, Simeon Solamo, and said cabin-boys ad the other two, Simeon
Solamo, and Eulalio Quiamco, knew of the existence of the money in the trunk inside the stateroom and witnessed its
removal to said trunk from the plaintiff's; that the last two cabin- boys above-named, in company with the master and the
supercargo, conveyed the plaintiff's trunk, in which the money was previously contained, from the plaintiff's shop to the
banca; and that no person not belonging to the vessel knew that the money was in the trunk inside said stateroom.

According to the testimony of the master Ipil himself he slept outside the stateroom that night, but a cabin-boy named Gabriel
slept inside. The latter, however, was not presented by the defendants to be examined in regard to this point, nor does it
appear that he testified in respect thereto in his affidavit, Exhibit 5, before referred to, presented by the defendant's own
counsel. The master Ipil and the supercargo Solamo also testified that they left the cabin-boy Simeon Solamo on guard that
night; but this affirmation was not corroborated by Solamo at the trial, for he was not introduced as a witness, and only his
affidavit, Exhibit 2, taken before the fiscal of Cebu on the day following the commission of the crime, was presented by the
defendants. This affidavit, which should have been admitted and not rejected, as was done by the court and excepted to by
the defendants, shows that Simeon Solamo stated that he was not designated to do guard duty that night, but that on the
morning of the said 19th of October, that is, the next day, all agreed that affiant should say that he was on guard, though it
was not true that he was.

Finally, said two defendants, the master and the supercargo, gave no satisfactory explanation in regard to the disappearance
of the trunk and the money therein contained, from the stateroom in which the trunk was, nor as to who stole or might have
stolen it. The master of the banca merely testified that they, he and the supercargo, did to know who the robbers were, for,
when the robbery was committed, they were sound asleep, as they were tired, and that he believed that the guard Simeon
also fell asleep because he, too, was tired. The second defendant gave the same testimony. Both of them testified that the
small window of the stateroom had been broken, and the first of them, i.e., the master, stated that all the window-blinds had
been removed from the windows, as well as part of the partition in which they were, and that the trunk in which the money
was contained could have been passed through said small window, because, as this witness himself had verified, the
Chinaman's trunk, which differed but a little from the one stolen, could be passed through the same opening. The chief pilot
of the harbor of Cebu, Placido Sepeda, who officially visited the said banca, also stated that the small wooden window of the
stateroom was broken, and that he believed that in breaking it much noise must have been produced. However, no evidence
whatever was offered by counsel for the defendants to prove that it might have been possible to remove the trunk from the
stateroom through the opening made by the breaking of the small window, neither was the size of the trunk proven, in
relation to the Chinaman's to which the defendant master referred in his testimony, so that it might be verified whether the
statement made by the latter was true, viz., that it might have been possible to remove from the stateroom through said
opening the trunk in which the P450 were contained, which sum, the same as the trunk, its container, had not been found, in
spite of the investigation made for the purpose. Furthermore, it was not proven, nor is there any circumstantial evidence to
show, that the robbery in question was committed by persons not belonging to the craft.

It is therefore beyond all doubt that the loss or disappearance, on the night aforementioned, of the P450, the property of the
plaintiff, which, were in the possession of the defendants, the master and the supercargo of the banca Maria, occurred
through the manifest fault and negligence of said defendants, for, not only did they fail to take the necessary precautions in
order that the stateroom containing the trunk in which they kept the money should be properly guarded by members of the
crew and put in such condition that it would be impossible to steal the trunk from it or that persons not belonging to the vessel
might force an entrance into the stateroom from the outside, but also they did not expressly station some person inside the
stateroom for the guarding and safe-keeping of the trunk, for it was not proven that the cabin-boy Gabriel slept there, as the
master of the vessel, Ipil, stated, nor that the other Cabin-boy, Simeon Solamo, was on guard that night, for the latter
contradicted the statements made by the two defendants on this point. On the contrary, it was proven by the master's own
statement that all the people of the vessel, including himself and the supercargo Solamo, slept soundly that night; which fact
cannot, in any manner, serve them as an excuse, nor can it be accepted as an explanation of the statement that they were
not aware of what was then occuring on board, if the trunk was actually stolen by outsiders and removed through the small
window of the stateroom, a detail which also was not proven, but, on the contrary, increases their liability, because it is very
strange that none of them, who were six and were around or near the stateroom, should have heard the noise which the
robbers must have made in breaking its window. All of these circumstances, together with that of its having been impossible
to know who took the trunk and the money and the failure to recover the one or the other make the conduct of the two
defendants and of the other members of the crew of banca, eminently supicious and prevent our holding that the
disappearance or loss of the money was due to a fortuitous event, to force majeure, or that it was an occurrence which could
not have been foreseen, or which, if foreseen, was inevitable.

It is unquestionable that the defendants Glicerio Ipil and Justo Solamo were the carriers of the said P450 belonging to the
plaintiff, and that they received this sum from the latter for the purpose of delivering it to the store of the town of Catmon, to
which it had been consigned. Under such circumstances, said defendants were the depositaries of the money.lawphi1.net

Manresa, in his Commentaries on the Civil Code (Vol. 10, p. 773), in treating of the provisions of the said code concerning
transportation by sea and by land of both persons and things, says:

Liability of carriers. — In order that a thing may be transported, it must be delivered to the carrier, as the Code says. From
the time it is delivered to the carrier or shipper until it is received by the consignee, the carrier has it in his possession, as a
necessary condition for its transportation, and is obliged to preserve and guard it; wherefore it is but natural and logical that
he should be responsible for it.
The Code discovers in the relation of all these elements the factors which go to make up the conception of a trust, and,
taking into account that the delivery of the thing on the part of the shipper is unavoidable, if the transportation is to take place,
esteem that, at least in certain respects, such trusts are necessary.

The said two defendants being the depositaries of the sum in question, and they having failed to exercise for its safe-keeping
the diligence required by the nature of the obligation assumed by them and by the circumstances of the time and the place, it
is evident that, in pursuance of the provisions of articles 1601 and 1602, in their relation to articles 1783 and 1784, and as
prescribed in articles 1770, of the Civil Code, they are liable for its loss or misplacement and must restore it to the plaintiff,
together with the corresponding interest thereon as an indemnity for the losses and damages caused him through the loss of
the said sum.

With respect to the other defendant, Narciso Lauron, as he was the owner of the vessel in which the loss or misplacement of
the P450 occurred, of which vessel, as aforestated, Glicerio Ipil was master and Justo Solamo, supercargo, both of whom
were appointed to, or chosen for, the positions they held, by the defendant himself, and, as the aforementioned sum was
delivered to the said master, Ipil, and the merchandise to be transported by means of said vessel from the port of Cebu to the
town of Catmon was laden by virtue of a contract executed by and between the plaintiff and the owner of the vessel, Narciso
Lauron, it behooves us to examine whether the latter, also, should be held to be liable, as requested by the plaintiff in his
complaint.

Said vessel was engaged in the transportation of merchandise by sea and made voyages to and from the port of Cebu to
Catmon, and had been equipped and victualed for this purpose by its owner, Narciso Lauron, with whom, as aforesaid, the
plaintiff contracted for the transportation of the merchandise which was to be carried, on the date hereinabove mentioned,
from the port of Cebu to the town of Catmon.

For legal purposes, that is, for the determination of the nature and effect of the relations created between the plaintiff, as
owner of the merchandise laden on said craft and of the money that was delivered to the master, Ipil, and the defendant
Lauron, as owner of the craft, the latter was a vessel, according to the meaning and construction given to the word vessel in
the Mercantile Code, in treating of maritime commerce, under Title 1,
Book 3.

The word vessel serves to designate every kind of craft by whatever particular or technical name it may now be known or
which nautical advancements may give it in the future. (Commentaries on the Code of Commerce, in the General Review of
Legislation and Jurisprudence, founded by D. Jose Reus y Garcia, Vol., 2 p. 136.)

According to the Dictionary of Legislation and Jurisprudence by Escriche, a vessel is any kind of craft, considering solely the
hull.

Blanco, the commentator on mercantile law, in referring to the grammatical meaning of the word "ship" and "vessels," says,
in his work aforecited, that these terms designate every kind of craft, large or small, whether belonging to the merchant
marine or to the navy. And referring to their juridical meaning, he adds: "This does not differ essentially from the grammatical
meaning; the words "ship" and "vessel" also designate every craft, large or small, so long as it be not an accessory of
another, such as the small boat of a vessel, of greater or less tonnage. This definition comprises both the craft intended for
ocean or for coastwise navigation, as well as the floating docks, mud lighters, dredges, dumpscows or any other floating
apparatus used in the service of an industry or in that of maritime commerce. . . ." (Vol. 1, p. 389.)

According to the foregoing definitions, then, we should that the banca called Maria, chartered by the plaintiff Yu Con from the
defendant Narciso Lauron, was a "vessel", pursuant to the meaning this word has in mercantile law, that is, in accordance
with the provisions of the Code of Commerce in force.

Glicerio Ipil, the master of the said banca Maria, must also be considered as its captain, in the legal acceptation of this word.

The same Code of Commerce in force in these Islands compares, in its article 609, masters with captains. It is to be noted
that in the Code of Commerce of Spain the denomination of arraeces is not included in said article as equivalent to that of
masters, as it is in the Code of these Islands.

Commenting on said article, the aforementioned General Review of Legislation and Jurisprudence says:
The name of captain or master is given, according to the kind of vessel, to the person in charge of it.
The first denomination is applied to those who govern vessels that navigate the high seas or ships of large dimensions and
importance, although they be engaged in the coastwise trade.
Masters are those who command smaller ships engaged exclusively in the coastwise trade.
For the purposes of maritime commerce, the words "captain" and "master" have the same meaning; both being the chiefs or
commanders of ships. (Vol. 2, p. 168.)
Article 587 of the Code of Commerce in force provides:

The agent shall be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the
care of the goods which the vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her
equipments and the freight he may have earned during the trip.

Article 618 of the same Code also prescribes:

The captain shall be civilly liable to the agent and the latter to the third persons who may have made contracts with the
former —
1. For all the damages suffered by the vessel and its cargo by reason of want of skill or negligence on his part, If a
misdemeanor or crime has been committed he shall be liable in accordance with the Penal Code.

2. For all the thefts committed by the crew, reserving his right of action against the guilty parties.

The Code of Commerce previous to the one now in force, to wit, that of 1829, in its article 624, provided that the agent or
shipowner should not be liable for any excesses which, during the navigation, might be committed by the captain and crew,
and that, for the reason of such excesses, it was only proper to bring action against the persons and property of those found
guilty.

Estasen, in his work on the Institutes of Mercantile Law (Vol. 4, p. 280), makes the following remarks, in referring to the
exposition of reasons presented by the Code Commission which prepared and presented for approval the Code of
Commerce now in force, in which exposition of reasons were set forth the fundamental differences between the provisions
contained in both codes, with respect to the subject-matter now under discussion. He says:

Another very important innovation introduced by the Code is that relative to the liability for misdemeanors and crimes
committed by the captain or by members of the crew. This is a matter of the greatest importance on which a variety of
opinions has been expressed by different juris-consults.

The old code declares the captain civilly liable for all damage sustained by the vessel or its cargo through lack of skill or care
on his part, through violations of the law, or through unlawful acts committed by the crew. As regards the agent or
shipowners, it declares in unmistakeable terms that he shall in no wise be liable for any excesses which, during the
navigation, may be committed by the captain and the crew.

Upon an examination, in the light of the principles of modern law, of the standing legal doctrine on the non-liability of the
shipowner for the unlawful acts, that is, the crimes or quasi crimes, committed by the captain and the crew, it is observed that
it cannot be maintained in the absolute and categorical terms in which it is formulated.

It is well and good that the shipowner be not held criminally liable for such crimes or quasi crimes; but the cannot be excused
from liability for the damage and harm which, in consequence of those acts, may be suffered by the third parties who
contracted with the captain, in his double capacity of agent and subordinate of the shipowner himself. In maritime commerce,
the shippers and passengers in making contracts with the captain do so through the confidence they have in the shipowner
who appointed him; they presume that the owner made a most careful investigation before appointing him, and, above all,
they themselves are unable to make such an investigation, and even though they should do so, they could not obtain
complete security, inasmuch as the shipowner can, whenever he sees fir, appoint another captain instead.

The shipowner is in the same case with respect to the members of the crew, for, though he does not appoint directly, yet,
expressly or tacitly, he contributes to their appointment.

On the other hand, if the shipowner derives profits from the results of the choice of the captain and the crew, when the choice
turns out successful, it is also just that he should suffer the consequences of an unsuccessful appointment, by application of
the rule of natural law contained in the Partidas, viz., that he who enjoys the benefits derived from a thing must likewise
suffer the losses that ensue therefrom.

Moreover, the Penal Code contains a general principle that resolves the question under consideration, for it declares that
such persons as undertake and carry on any iondustry shall be civilly liable, in default of those who may be criminally liable,
for the misdemeanors and crimes committed by their subordinates in the discharge of their duties.

The Code of Commerce in force omits the declaration of non-liability contained in the old code, and clearly makes the
shipowner liable civilly for the loss suffered by those who contracted with the captain, in consequence of the misdemeanors
and crimes committed by the latter or by the members of the crew.

It is therefore evident that, in accordance with the provisions of the Code of Commerce in force, which are applicable to the
instance case, the defendant Narciso Lauron, as the proprietor and owner of the craft of which Glicerio Ipil was the master
and in which, through the fault and negligence of the latter and of the supercago Justo Solamo, there occurred the loss, theft,
or robbery of the P450 that belonged to the plaintiff and were delivered to said master and supercargo, a theft which, on the
other hand, as shown by the evidence, does not appear to have been committed by a person not belonging to the craft,
should, for said loss or theft, be held civilly liable to the plaintiff, who executed with said defendant Lauron the contract for the
transportation of the merchandise and money aforementioned between the port of Cebu and the town of Catmon, by means
of the said craft.

Therefore, the trial court did not err in so holding in the judgement appealed from.

The plaintiff having filed his answer to the cross-complaint as soon as the defendant presented their motion for] a declaration
of the plaintiff's default in connection with said cross-complaint, and it being optional with the court to make in such cases the
declaration of default, as provided in section 129 of the Code of Civil Procedure, the said court did not incur the second error
assigned by the appellants in their brief.

Lastly, as the banca Maria did not make the trip she should have made from the port of Cebu to the town of Catmon, on the
occasion in question, through cases chargeable, as has been seen, to the captain and the supercargo of said banca, to wit,
because of the loss, theft of robbery of the P450 belonging to the plaintiff, and as a contract was made for the transportation
of the said sum and the merchandise from one of said points to the other, for the round trip, and not through payment by the
plaintiff of the wages due the crew for each day, as alleged by the defendants, for the proofs presented by the latter in regard
to this point were insufficient, as the trial court so held, neither did the latter incur error in overruling the cross-complaint
formulated by the defendants in their answer against the plaintiff.

Therefore, and for all the reasons above set forth, we affirm the judgment appealed from, with the costs of this instance
against the appellants. So ordered.

G.R. No. L-29166 October 22, 1928

AUGUSTO LOPEZ, plaintiff-appellant, vs.JUAN DURUELO, ET AL., defendants. ALBINO JISON, appellee.

STREET, J.:

This action was instituted in the Court of First Instance of Occidental Negros by Augusto Lopez, for the purpose of recovering
damages for personal injuries inflicted upon him by reason of the negligence of the defendants, Juan Duruelo and Albino
Jison. The defendants demurred to the complaint, and the demurrer having been sustained, the plaintiff elected to stand
upon his complaint, which was accordingly dismissed; and the plaintiff appealed.

The facts necessary to an understanding of the case as set out in the complaint are briefly these: On February 10, 1927, the
plaintiff, who is a resident of the municipality of Silay, Occidental Negros, was desirous of embarking upon the interisland
steamer San Jacinto in order to go to Iloilo. This boat was at the time in the anchoring-ground of the port of Silay, some half a
mile distant from the port. The plaintiff therefore embarked at the landing in the motor boat Jison, which was then engaged in
conveying passengers and luggage back and forth from the landing to boats at anchor, and which was owned and operated
by the defendant Albino Jison, with Juan Duruelo as patron. The engineer (maquinista) aboard on this trip was one Rodolin
Duruelo, a boy of only 16 years of age. He is alleged to have been a mere novice without experience in the running of motor
boats; and the day of the occurrence now in contemplation is said to have been the third day of his apprenticeship in this
capacity. It is alleged that the Jison, upon this trip, was grossly overladen, having aboard fourteen passengers, while its
capacity was only for eight or nine. As the motor boat approached the San Jacinto in a perfectly quiet sea, it came too near
to the stern of the ship, and as the propeller of the ship had not yet ceased to turn, the blades of the propeller struck the
motor boat and sank it at once. It is alleged in the complaint that the approach of the Jison to this dangerous proximity with
the propeller of the San Jacinto was due to the fault, negligence and lack of skill of the defendant Juan Duruelo, as patron of
the Jison. As the Jison sank, the plaintiff was thrown into the water against the propeller, and the revolving blades inflicted
various injuries upon him, consisting of a bruise in the breast, two serious fractures of the bones of the left leg, and a
compound fracture of the left femur. As a consequence of these injuries the plaintiff was kept in bed in a hospital in the City
of Manila from the 28th of February until October 19 of the year 1927, or approximately eight months. In the conclusion of his
complaint the plaintiff sets out the various items of damage which he suffered, amounting in all to something more than
P120,000. These damages he seeks to recover of the defendants in this action.

As a general ground of demurrer it is assigned by the defendants that the complaint does not show a right of action, and in
the course of the argument submitted with the demurrer attention is directed to the fact that the complaint does not allege
that a protest had been presented by the plaintiff, within twenty-four hours after the occurrence, to the competent authority at
the port where the accident occured. It is accordingly insisted that, under article 835 of the Code of Commerce, the plaintiff
has shown no cause of action.

Assuming that the article of the Code of Commerce relied upon states a condition precedent to the maintenance of an action
in case where protest is required and that the making of protest must be alleged in the complaint in order to show a good
cause of action — an assumption that is possibly without basis, for the reason that lack of protest in a case where protest is
necessary would seem to supply matter of defense proper to be set up in the answer, — we nevertheless are of the opinion
that protest was not necessary in the case now before us. The article in question (835, Code of Com.) is found in the section
dealing with collisions, and the context shows the collisions intended are collisions of sea-going vessels. Said article cannot
be applied to small boats engaged in river and bay traffic. The Third Book of the Code of Commerce, dealing with Maritime
Commerce, of which the section of Collisions forms a part, was evidently intended to define the law relative to mechant
vessels and marine shipping; and, as appears from said Code, the vessels intended in that Book are such as are run by
masters having special training, with the elaborate apparatus of crew and equipment indicated in the Code. The word
"vessel" (Spanish "buque," "nave"), used in the section referred to was not intended to include all ships, craft or floating
structures of every kind without limitation, and the provisions of that section should not be held to include minor craft
engaged only in river and bay traffic. Vessels which are licensed to engage in maritime commerce, or commerce by sea,
whether in foreign or coastwise trade, are no doubt regulated by Book III of the Code of Commerce. Other vessels of a minor
nature not engaged in maritime commerce, such as river boats and those carrying passengers from ship to shore, must be
governed, as to their liability to passengers, by the provisions of the Civil Code or other appropriate special provisions of law.

This conclusion is substantiated by the writer Estasen who makes comment upon the word "vessel" to the following effect:

When the mercantile codes speak of vessels, they refer solely and exclusively to merchant ships, as they do not include war
ships furthermore, they almost always refer to craft which are not accessory to another as is the case of launches, lifeboats,
etc. Moreover, the mercantile laws, in making use of the words ship, vessels, boat, embarkation, etc., refer exclusively to
those which are engaged in the transportation of passengers and freight from one port to another or from one place to
another; in a word, they refer to merchant vessels and in no way can they or should they be understood as referring to
pleasure craft, yachts, pontoons, health service and harbor police vessels, floating storehouses, warships or patrol vessels,
coast guard vessels, fishing vessels, towboats, and other craft destined to other uses, such as for instance coast and
geodetic survey, those engaged in scientific research and exploration, craft engaged in the loading and discharge of vessels
from same to shore or docks, or in transhipment and those small craft which in harbors, along shore, bays, inlets, coves and
anchorages are engaged in transporting passengers and baggage. (Estasen, Der. Mer., vol IV, p. 195.)
In Yu Con vs. Ipil (41 Phil., 770), this court held that a small vessel used for the transportation of merchandise by sea and for
the making of voyages from one port to another of these Islands, equipped and victualed for this purpose by its owner, is a
vessel, within the purview of the Code of Commerce, for the determination of the character and effect of the relations created
between the owners of the merchandise laden on it and its owner. In the case before us the Jison, as we are informed in the
complaint, was propelled by a second-hand motor, originally used for a tractor plow; and it had a capacity for only eight
persons. The use to which it was being put was the carrying of passengers and luggage between the landing at Silay and
ships in the harbor. This was not such a boat as is contemplated in article 835 of the Code of Commerce, requiring protest in
case of collision.

In Yu Con vs. Ipil, supra, the author of the opinion quotes a passage from the treaties on Mercantile Law by Blanco. We now
have before us the latest edition of Blanco, and we reproduced here, in both Spanish and English, not only the passage thus
quoted but also the sentence immediately following said passage; and this latter part of the quotation is quite pertinent to the
point now under consideration.

Says Blanco: Las palabras "nave" y "buque", en su sentido gramatical se aplican para designar cualquier clase de
embarcaciones, grandes o pequenas, mercantes o de guerra, significacion que no difiere esencialmente de la juridica, con
arreglo a la cual se consideran buques para los efectos del Codigo y del Reglamento para la organizacion del Registro
mencantile, no solo las embarcaciones destinadas a la navegacion de cabo taje o altura, sino tambien los diques flotantes,
pontones, dragas, ganguiles y cualquier otro aparato flotante destinado a servicios de la industria o del comercio maritimo.
"Aun cuando, corforme a este concepto legal, parece que todo aparato flotante que sirve directamente para el trasporte de
cosas o personas, o que inderectamente se relacionen con esta industria, han de sujertarse a los preceptos del Codigo
sobre propiedad, transmision, derechos, inscripciones, etc., entendemos con el Sr. Benito (obra cit.) y asi ocurre en la
practica, que no son aplicables a las pequeñas embarcaciones, que solo estan sujetas a los de la administracion de marina
para el servicio de los puertos o ejercicio de la industria de la pesca. (Blanco, Der. Mer., vol. II, pag. 22.)

The words "ship" (nave) and "vessel" (buque), in their grammatical sense, are applied to designate every kind of craft, large
or small, merchant vessels or war vessels, a signification which does not differ essentially from its juridical meaning,
according to which vessels for the purposes of the Code and Regulations for the organization of the Mercantile Registry, are
considered not only those engaged in navigation, whether coastwise or on the high seas, but also floating docks, pantoons,
dredges, scows and any other floating apparatus destined for the service of the industry or maritime commerce.

Yet notwithstanding these principles from which it would seem that any

floating apparatus which serves directly for the transportation of things or persons or which inderectly is related to this
industry, ought to be subjected to the principles of the Code with reference to ownership, transfer, rights, registration, etc., we
agre with Benito (obra cit.) and it so happens in practice that they are not aplicable to small which are subject to
administrative (customs) regulations in the matter of port service and in the fishing industry.1awph!l.net

We may add that the word "nave" in Spanish, which is used interchangeably with "buque" in the Code of Commerce, means,
according to the Spanish-English Dictionary complied by Edward R. Bensley and published at Paris in the year 1896, "Ship,
a vessel with decks and sails." Particularly significant in this definition is the use of the word "decks" since a deck is not a
feature of the smallest types of water craft.

In this connection a most instructive case from a Federal Court in the United States is that of the Mamie (5 Fed., 813),
wherein it was held that only vessels engaged in what is ordinarily known as maritime commerce are within the provisions of
law conferring limited liability on the owner in case maritime disaster. In the course of the opinion in that case the author cites
the analogous provisions in the laws of foreign maritime, nations, especially the provisions of the Commercial Code of
France; and it is observed that the word "vessel" in these codes is limited to ships and other sea-going vessels. "Its
provisions are not applicable," said the court, "to vessels in inland navigation, which are especially designated by the name of
boats." Quoting from the French author Dufour (1 Droit Mer., 121), the writer of the opinion in the case cited further says:
"Thus, as a general rule, it appears to me clearly, both by the letter and spirit of the law, that the provisions of the Second
Book of the Commercial Code [French] relate exclusively to maritime and not to fluvial navigation; and that consequently the
word 'ship' when it is found in these provisions, ought to be understand in the sense of a vessel serving the purpose of
maritime navigation of seagoing vessel, and not in the sense of a vessel devoted to the navigation of rivers."

It is therefore clear that a passenger on a boat like the Jison, in the case before us, is not required to make protest as a
condition precedent to his right of action for the injury suffered by him in the collision described in the complaint. In other
words, article 835 of the Code of Commerce does not apply. But even if said provision had been considered applicable to the
case in hand, a fair interpretation of the allegations of the complaint indicates, we think, that the injuries suffered by the
plaintiff in this case were of such a nature as to excuse protest; for, under article 836, it is provided that want to protest
cannot prejudice a person not in a condition to make known his wishes. An individual who has suffered a compound fracture
of the femur and received other physical injuries sufficient to keep him in a hospital for may months, cannot be supposed to
have in a condition to make protest within twenty-four hours of such occurrence. It follows that the demurrer in this case was
not well taken and should have been overruled.

In their brief in this court the attorneys for the defendant have criticised the complaint for a general lack of certainty and
precision in more than one respect. However, we have read the document attentively and, in our opinion, it states a good
cause of action upon a civil liability arising from tort under articles 1902 and 1903 of the Civil Code, and our attention has not
been drawn to any provision of law which would constitute an obstacle to the maintenance of the action.

We have repeatedly called the attention of trial courts to the general rule that a case should not be dismissed on demurrer
when, under any reasonable interpretation of the complaint, a cause of action can be made out; and the fact that a complaint
is inartificially drawn or in a certain degree lacking in precision constitutes no sufficient reason for dismissing it. In passing
upon a demurrer, every reasonable intendment is to be taken in favor of the pleader. In this connection it should be borne in
mind that if a complaint does not show a good cause of action, the action can be dismissed at a later stage of the
proceedings; and even where no objection has been previously made, the point can be raised in the Supreme Court under
section 93 of the Code of Civil Procedure (Abiera vs. Orin, 8 Phil., 193). Little or no appreciable prejudice to the defendant
will therefore ordinarily result from overruling a demurrer, and no harm is done to anyone by requiring the defendant to
answer. On the contrary, grave prejudice may result to a plaintiff from the erroneous sustaining of a demurrer, because of the
delay and even expense necessary to set the matter right upon appeal.

The judgment appealed from is reversed, the demurrer overruled, and the defendant is required to answer the complaint
within five days after notification of the return of this decision to the court of origin. So ordered, with costs against the
appellee.

G.R. No. 130772 November 19, 1999

WALLEM MARITIME SERVICES, INC., and WALLEM SHIP MANAGEMENT, LTD., petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION and ELIZABETH INDUCTIVO, respondents. BELLOSILLO, J.:

WALLEM MARITIME SERVICES, INC. and WALLEM SHIP MANAGEMENT LTD. in this petition for certiorari assail for
having been rendered with grave abuse of discretion the 30 June 1997 Resolution of the National Labor Relations
Commission dismissing their appeal for lack of merit, as well as its 29 August 1997 Resolution denying reconsideration
thereof. 1

Sometime in May 1993, Pan-Fil Co. Inc., as manning and crewing agent in the Philippines of Wallem Ship Management Ltd.
(WALLEM MANAGEMENT), hired Faustino Inductivo as utilityman for "MT Rowan," a vessel owned and operated by
WALLEM MANAGEMENT, a Hongkong based shipping company. The employment contract of Faustino Inductivo was good
for ten (10) months with a compensation of US$360.00 monthly basic salary, US$201.00 fixed monthly overtime pay, and a
monthly vacation leave with pay for six (6) days. As was the standard procedure, Faustino Inductivo underwent pre-
employment medical examination and was found by his employer's doctors to be physically fit for work. So, on 13 May 1993,
he was told to board as he did the "MT Rowan."

In November 1993 Wallem Maritime Services, Inc. (WALLEM SERVICES) took over as WALLEM MANAGEMENT's manning
and crewing agent in the Philippines. Faustino Inductivo, who was advised of the takeover, opted to remain on the vessel
and to continue his employment under the manning agency of WALLEM SERVICES. Barely two (2) months before the
expiration of his employment contract, or on 17 January 1994, he was discharged from the vessel. His Seaman's Book 2 and
Wages Account 3 indicated that the cause of the discharge was "mutual consent, on completion of 8 months and 5 days."
Accordingly, he disembarked in Hong Kong, travelled to Manila alone and then returned to his hometown in Nueva Ecija.

On 19 January 1994, two (2) days after his arrival in the Philippines, he was hospitalized at the Yamsuan Medical Clinic in
Gapan, Nueva Ecija, after complaining of occasional coughing and chest pains. The clinical diagnosis was pneumonities,
bilateral. As his condition worsened, Faustino Inductivo was rushed to the Lung Center of the Philippines where a mass was
found on his right lung and another on his right neck. His doctor advised him to undergo biopsy treatment, but since he was
scared he requested to go on medication at home instead. Two (2) days thereafter, Faustino Inductivo returned to the
hospital, this time at the De Ocampo Memorial Medical Center. Dr. Alfredo Sales, his attending physician, found on
examination the presence of water in his lungs causing shortness of breath. For insufficiency of medical facilities, however,
he was transferred to the Makati Medical Center where his doctor finally abandoned all hopes for his recovery as his disease
was already in its advanced stage. He succumbed to his illness on 23 April 1994 and the autopsy report showed as cause of
death disseminated intravascular coagulations, septecalmia, pulmonary congestion and multiple intestinal obstruction
secondary to multiple adhesions. 4

Before Faustino Inductivo's death, or sometime in February 1994, herein private respondent Elizabeth Inductivo went to
petitioners to claim the balance of her husband's leave wages. She also inquired about his sickness benefits as he was then
very sick. Petitioners however informed her that her husband was not entitled to sickness benefits because he was not sick
at the time he was "offsigned" from the vessel; he was "offsigned" from the vessel on "mutual consent" and not on medical
grounds; and since he failed to advise or notify petitioners in writing within seventy-two (72) hours of his alleged sickness, his
right to claim sickness benefits was deemed forfeited. Consequently, at the instance of Faustino Inductivo, private
respondent filed an affidavit-complaint against petitioners for the payment of sickness and insurance benefits. After Faustino
Inductivo died his complaint was amended by private respondent to include death benefits.

On 24 September 1996 the Labor Arbiter 5 rendered a decision in favor of private respondent ordering petitioners to pay
complainant, for herself and in her capacity as guardian of her two (2) minor children, as follows: US$50,000.00 as death
benefits; US$14,000.00 as children's allowances; and US$1,000.00 as burial expenses.

On appeal the NLRC sustained the Labor Arbiter. In its Resolution of 30 June 1997 the NLRC held in part —

It may be true that the deceased failed to report to respondent Wallem Maritime within seventy two hours after arrival in the
Philippines but it could not be denied also that the deceased was sick when he arrived. Human mind dictates that a medical
consultation at the nearest clinic is necessary before anything else. The wife could not immediately advise the respondent
due to the situation of her deceased husband . . . . The allegation of the complainant that her husband was repatriated upon
petition of the crew due to the deteriorating physical condition of Faustino Inductivo, was not denied by respondent. The
defense of the latter that the repatriation of the deceased was by "mutual consent" and not discharged medically deserves
scant consideration. It is to be emphasized that the illness was contracted during the deceased's employment on board "MT
Rowan." Suffice it to say that the death of Faustino Inductivo is compensable under the circumstances.
Their motion for reconsideration having been denied by the NLRC in its Resolution of 29 August 1997, petitioners are now
before us imputing grave abuse of discretion on the part of the NLRC in: (a) totally disregarding the evidence on record; (b)
ignoring and disregarding the existing law and jurisprudence on the matter; and, (c) affirming in toto the Labor Arbiter's award
of death compensation in favor of private respondent.

The pivotal issue to be resolved is whether the death of Faustino Inductivo is compensable as to entitle his wife and children
to claim death benefits. Petitioners insist that it is not compensable for two (2) principal reasons: first, Faustino Inductivo was
offsigned from the vessel "MT Rowan" based on "mutual consent" and not on medical grounds, and the cancer which caused
his death was not contracted during his employment but was a pre-existing condition; and second, Faustino Inductivo failed
to comply with the mandatory seventy-two (72)-hour reporting requirement prescribed by the POEA standard employment
contract, and therefore his right to claim benefits was deemed forfeited.

Petitioners would want to impress upon this Court that Faustino Inductivo was still in good health when he disembarked from
"MT Rowan," as shown in his Seaman's Book indicating that the cause of his discharge was "mutual consent in writing" and
not on medical grounds.

We disagree. From all indications, Faustino Inductivo was already in a deteriorating physical condition when he left the
vessel. This is the only plausible reason why with barely two (2) months away from the expiration of his employment contract
he was all of a sudden and with no rational explanation discharged from the vessel. This conclusion is buttressed by the
events that transpired immediately upon his arrival in the Philippines, i.e., he was hospitalized two (2) days later and died
three (3) months after.

Thus, as succinctly observed by the Labor Arbiter —

While it's true that the seaman was offsigned from the vessel by "mutual consent," what could have been the compelling
reason why only less than two (2) months away before the expiration of his employment contract, he decided to disembark.
Then there is the question about the true state of his health at the time he disembarked. The puzzle of course is why two (2)
days upon his disembarkation complainant's husband lapsed into his ordeal immediately serious at the onset without any
sign of relief until his last breath barely three months thereafter.

It is indeed unthinkable that the deceased seaman at the homestretch of his voyage would suddenly seek the end of his
employment for no reason at all. There is only one logical explanation for this given the circumstances that took place
immediately after disembarkation. Complainant's husband was already seriously ill when he (was) discharged from the
vessel. This conclusion is supported by the fact that barely two (2) days upon his arrival in the Philippines, he was rushed to
a local medical clinic for some serious symptoms. There being no relief after six (6) days of medical attendance, the late
seaman was transferred to the Lung Center of the Philippines. Again, as there was likewise no relief obtained the family was
constrained to seek further work-outs in two (2) other hospitals, the last of which was at the Makati Medical Center where all
clinical procedures and work-outs were ruled out as of no consequence since the deceased's condition at the time was
already irreversible.

There is likewise no merit in petitioners' theory that Faustino Inductivo died of cancer which was pre-existing and could not
have been contracted during the eight (8)-month period of his employment at the vessel. Primarily, both the Death Certificate
6 and Autopsy Report of Faustino Inductivo never mentioned that the cause of death was cancer. What was mentioned was
"septicemia," if we go by the Death Certificate, and "disseminated intravascular coagulations, septecalmia, pulmonary
congestion, multiple intestinal obstruction secondary to multiple adhesions," if we refer to the autopsy report. Ostensibly,
cancer was not in the list.

Indeed, there was never any categorical or conclusive finding that Faustino Inductivo was afflicted with cancer. Petitioners'
extensive discussion in support of their "cancer theory" is nothing more than mere speculations cloaked in medical gibberish.
Moreover, we agree with private respondent that opinions of petitioners' doctors to this effect should not be given evidentiary
weight as they are palpably self-serving and biased in favor of petitioners, and certainly could not be considered
independent. These medical opinions cannot prevail over the entries in the Death Certificate and Autopsy Report.

Furthermore, before Faustino Inductivo was made to sign the employment contract with petitioners he was required to
undergo, as a matter of procedure, medical examinations and was declared fit to work by no less than petitioners' doctors.
Petitioners cannot now be heard to claim that at the time Faustino Inductivo was employed by them he was afflicted with a
serious disease, and that the medical examination conducted on the deceased seaman was not exploratory in nature such
that his disease was not detected in the first instance. Being the employer, petitioners had all the opportunity to pre-qualify,
screen and choose their applicants and determine whether they were medically, psychologically and mentally fit for the job
upon employment. The moment they have chosen an applicant they are deemed to have subjected him to the required pre-
qualification standards.

But even assuming that the ailment of Faustino Inductivo was contracted prior to his employment on board "MT Rowan," this
is not a drawback to the compensability of the disease. It is not required that the employment be the sole factor in the growth,
development or acceleration of the illness to entitle the claimant to the benefits provided therefor. It is enough that the
employment had contributed, even in a small degree, to the development of the disease and in bringing about his death.

It is indeed safe to presume that, at the very least, the nature of Faustino Inductivo's employment had contributed to the
aggravation of his illness — if indeed it was pre-existing at the time of his employment — and therefore it is but just that he
be duly compensated for it. It cannot be denied that there was at least a reasonable connection between his job and his lung
infection, which eventually developed into septicemia and ultimately caused his death. As a utilityman on board the vessel,
he was exposed to harsh sea weather, chemical irritants, dusts, etc., all of which invariably contributed to his illness.
Neither is it necessary, in order to recover compensation, that the employee must have been in perfect condition or health at
the time he contracted the disease. Every workingman brings with him to his employment certain infirmities, and while the
employer is not the insurer of the health of the employees, he takes them as he finds them and assumes the risk of liability. If
the disease is the proximate cause of the employee's death for which compensation is sought, the previous physical
condition of the employee is unimportant and recovery may be had therefor independent of any pre-existing disease. 7

On the alleged failure of private respondent to comply with the seventy-two (72)-hour reporting requirement, the POEA
Standard Employment Contract Governing the Employment of All Filipino Seamen on Board Ocean Going Vessel, 8 provides
in part —

. . . . the seaman shall submit himself to a post-employment medical examination by the company-designated physician
within three working days upon his return, except when he is physically incapacitated to do so, in which case a written notice
to the agency within the same period is deemed as compliance. Failure of the seaman to comply with the mandatory
requirement shall result in his forfeiture of the right to claim the above benefits (Emphasis supplied).

Admittedly, Faustino Inductivo did not subject himself to post-employment medical examination within three (3) days from his
return to the Philippines, as required by the above provision of the POEA standard employment contract. But such
requirement is not absolute and admits of an exception, i.e., when the seaman is physically incapacitated from complying
with the requirement. Indeed, for a man who was terminally ill and in need of urgent medical attention one could not
reasonably expect that he would immediately resort to and avail of the required medical examination, assuming that he was
still capable of submitting himself to such examination at that time. It is quite understandable that his immediate desire was to
be with his family in Nueva Ecija whom he knew would take care of him. Surely, under the circumstances, we cannot deny
him, or his surviving heirs after his death, the right to claim benefits under the law.

Similarly, neither could private respondent Elizabeth Inductivo be expected to have thought of, much less had the leisure of
time to travel all the way to Manila, to notify petitioners of her husband's condition. Her primary concern then was to take care
of her husband who was at the brink of death.

At any rate, it appears that in early February 1994 private respondent went to petitioners to claim the balance of her
husband's leave wages. She then informed petitioners of the condition of her husband as well as his confinement in a
hospital, and inquired about the sickness benefits she intended to claim. This was more than sufficient actual notice to
petitioners.

It is relevant to state that the POEA standard employment contract is designed primarily for the protection and benefit of
Filipino seamen in the pursuit of their employment on board ocean-going vessels. Its provisions must, therefore, be
construed and applied fairly, reasonably and liberally in favor or for the benefit of the seamen and their dependents. Only
then can its beneficent provisions be fully carried into effect.

Finally, petitioner WALLEM SERVICES as manning agent is jointly and severally liable with its principal, WALLEM
MANAGEMENT, for the claims of the heirs of Faustino Inductivo in accordance with Sec. 1, Rule II of the POEA Rules and
Regulations. 9

WHEREFORE, the petition is DISMISSED. The assailed Resolutions of public respondent National Labor Relations
Commission dated 30 June 1997 and 29 August 1997, respectively dismissing petitioners' appeal for lack of merit and
denying reconsideration thereof, are AFFIRMED. Petitioners are ordered to pay, jointly and severally, the following amounts
to private respondent for herself and in her capacity as guardian of her two (2) minor children: US$50,000.00 as death
benefits; US$14,000.00 as children's allowances; and US$1,000.00 as burial expenses. Costs against petitioners.

G.R. No. L-41506 March 25, 1935

PHILIPPINE REFINING CO., INC., plaintiff-appellant, vs.FRANCISCO JARQUE, JOSE COROMINAS, and ABOITIZ & CO.,
defendants. JOSE COROMINAS, in his capacity as assignee of the estate of the insolvent Francisco Jarque, appellee.
MALCOLM, J.:

First of all the reason why the case has been decided by the court in banc needs explanation. A motion was presented by
counsel for the appellant in which it was asked that the case be heard and determined by the court sitting in banc because
the admiralty jurisdiction of the court was involved, and this motion was granted in regular course. On further investigation it
appears that this was error. The mere mortgage of a ship is a contract entered into by the parties to it without reference to
navigation or perils of the sea, and does not, therefore, confer admiralty jurisdiction. (Bogart vs. Steamboat John Jay [1854],
17 How., 399.)

Coming now to the merits, it appears that on varying dates the Philippine Refining Co., Inc., and Francisco Jarque executed
three mortgages on the motor vessels Pandan and Zaragoza. These documents were recorded in the record of transfers and
incumbrances of vessels for the port of Cebu and each was therein denominated a "chattel mortgage". Neither of the first two
mortgages had appended an affidavit of good faith. The third mortgage contained such an affidavit, but this mortgage was
not registered in the customs house until May 17, 1932, or within the period of thirty days prior to the commencement of
insolvency proceedings against Francisco Jarque; also, while the last mentioned mortgage was subscribed by Francisco
Jarque and M. N. Brink, there was nothing to disclose in what capacity the said M. N. Brink signed. A fourth mortgage was
executed by Francisco Jarque and Ramon Aboitiz on the motorship Zaragoza and was entered in the chattel mortgage
registry of the register of deeds on May 12, 1932, or again within the thirty-day period before the institution of insolvency
proceedings. These proceedings were begun on June 2, 1932, when a petition was filed with the Court of First Instance of
Cebu in which it was prayed that Francisco Jarque be declared an insolvent debtor, which soon thereafter was granted, with
the result that an assignment of all the properties of the insolvent was executed in favor of Jose Corominas.

On these facts, Judge Jose M. Hontiveros declined to order the foreclosure of the mortgages, but on the contrary sustained
the special defenses of fatal defectiveness of the mortgages. In so doing we believe that the trial judge acted advisedly.

Vessels are considered personal property under the civil law. (Code of Commerce, article 585.) Similarly under the common
law, vessels are personal property although occasionally referred to as a peculiar kind of personal property. (Reynolds vs.
Nielson [1903], 96 Am. Rep., 1000; Atlantic Maritime Co vs. City of Gloucester [1917], 117 N. E., 924.) Since the term
"personal property" includes vessels, they are subject to mortgage agreeably to the provisions of the Chattel Mortgage Law.
(Act No. 1508, section 2.) Indeed, it has heretofore been accepted without discussion that a mortgage on a vessel is in
nature a chattel mortgage. (McMicking vs. Banco Español-Filipino [1909], 13 Phil., 429; Arroyo vs. Yu de Sane [1930], 54
Phil., 511.) The only difference between a chattel mortgage of a vessel and a chattel mortgage of other personalty is that it is
not now necessary for a chattel mortgage of a vessel to be noted n the registry of the register of deeds, but it is essential that
a record of documents affecting the title to a vessel be entered in the record of the Collector of Customs at the port of entry.
(Rubiso and Gelito vs. Rivera [1917], 37 Phil., 72; Arroyo vs. Yu de Sane, supra.) Otherwise a mortgage on a vessel is
generally like other chattel mortgages as to its requisites and validity. (58 C.J., 92.)

The Chattell Mortgage Law in its section 5, in describing what shall be deemed sufficient to constitute a good chattel
mortgage, includes the requirement of an affidavit of good faith appended to the mortgage and recorded therewith. The
absence of the affidavit vitiates a mortgage as against creditors and subsequent encumbrancers. (Giberson vs. A. N.
Jureidini Bros. [1922], 44 Phil., 216; Benedicto de Tarrosa vs. F. M. Yap Tico & Co. and Provincial Sheriff of Occidental
Negros [1923], 46 Phil., 753.) As a consequence a chattel mortgage of a vessel wherein the affidavit of good faith required
by the Chattel Mortgage Law is lacking, is unenforceable against third persons.

In effect appellant asks us to find that the documents appearing in the record do not constitute chattel mortgages or at least
to gloss over the failure to include the affidavit of good faith made a requisite for a good chattel mortgage by the Chattel
Mortgage Law. Counsel would further have us disregard article 585 of the Code of Commerce, but no reason is shown for
holding this article not in force. Counsel would further have us revise doctrines heretofore announced in a series of cases,
which it is not desirable to do since those principles were confirmed after due liberation and constitute a part of the
commercial law of the Philippines. And finally counsel would have us make rulings on points entirely foreign to the issues of
the case. As neither the facts nor the law remains in doubt, the seven assigned errors will be overruled.

Judgment affirmed, the costs of this instance to be paid by the appellant.

[G.R. No. 128661. August 8, 2000]

PHILIPPINE NATIONAL BANK/NATIONAL INVESTMENT DEVELOPMENT CORPORATION, petitioners, vs. THE

COURT OF APPEALS, CHINA BANKING CORPORATION, respondents. GONZAGA-REYES, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioners seek the reversal of the 21 March 1997
decisioni[1] of the Court of Appeals in C.A.-G.R. No. CV-38131. The assailed decision set aside the Orderii[2] dated 4 March
1992 of the Regional Trial Court of Makati City, Branch 146 in Civil Case No. 7119 insofar as it dismissed the complaint-in-
intervention of private respondent China Banking Corporation.

The facts of the case are as follows:

To finance the acquisition of seven (7) ocean-going vessels, namely M/V Asean Liberty, M/V Asean Independence, M/V
Asean Mission, M/V Asean Knowledge, M/V Asean Nations, M/V Asean Greatness, and M/V Asean Objectives, the
Philippine International Shipping Corporation (hereinafter PISC) applied for and was granted by petitioner National
Investment and Development Corporation (hereinafter NIDC) the following guaranty accommodations:

a. US$9.44 Million in favor of Ultrafin A.G. of Zurich, Switzerland as Agent for the banks/financial institutions as evidenced
by and subject to the terms and conditions of a Guaranty Agreement dated December 7, 1978 to partly finance the
acquisition of two (2) ocean-going vessels;

b. US$23.60 Million in favor of the Philippine National Bank (hereinafter PNB as evidenced by and subject to the terms and
conditions of a Consolidated Amendatory Agreement dated January 25, 1979 to finance the acquisition cost of four (4)
additional ocean-going vessels; and

c. US$1.291 Million in favor of PNB as evidenced by and subject to the terms and conditions of that Second Consolidated
Amendatory Agreement dated July 17, 1979 to finance the additional acquisition cost of one (1) ocean-going vessel.iii[3]

As security for these guaranty accommodations, PISC executed in favor of petitioners the following mortgage documents:

a. Deed of Chattel Mortgage dated September 14, 1979 constituted on M/V Asean Liberty and M/V Asean Nation and
recorded on September 25, 1979 with the Philippine Coast Guard Headquarters;

b. Supplemental Chattel Mortgage dated October 2, 1979 constituted on M/V Asean Independence, M/V Asean Mission,
M/V Asean Knowledge, and M/V Asean Objectives and recorded with the Philippine Coast Guard Headquarters on February
13, 1980; and
c. Supplemental Chattel Mortgage constituted on M/V Asean Greatness and recorded with the Philippine Coast Guard
Headquarters on February 3, 1981.iv[4]

Meanwhile, on March 12, 1979, PISC entered into a Contract Agreement with Hong Kong United Dockyards, Ltd. for the
repair and conversion of the vessel M/V Asean Liberty at a contract price of HK$2,200,000.00 variable as provided
therein.v[5]

On May 28, 1979, the Central Bank of the Philippines authorized PISC to open with private respondent China Banking
Corporation (hereinafter CBC) a standby letter of credit for US$545,000.00 in favor of Citibank, N.A. (hereinafter Citibank) to
cover the repair and partial conversion of the vessel M/V Asean Liberty. This was pursuant to the letter of the Central Bank of
the Philippines dated May 28, 1979 as amended on June 20, 1979.vi[6]

On June 15, 1979, PISC executed an Application and Agreement for Commercial Letter of Credit for $545,000.00 with
private respondent CBC in favor of Citibank. Pursuant to this application and agreement, private respondent CBC issued on
September 12, 1979 its Irrevocable Standby Letter of Credit No. 79/4174 for US$545,000.00 in favor of Citibank for account
of PISC.

On September 17, 1979, a Promissory note for US$545,000.00 was executed by PISC in favor of Citibank pursuant to the
Loan Agreement for US$545,000.00 between PISC, as borrower, and Citibank, as lender.vii[7]

Upon failure of PISC to fulfill its obligations under the said promissory note, Citibank sent to private respondent CBC a letter
dated March 25, 1983 drawing on Letter of Credit No. 79/4174. In this letter, Citibank certified that the draft attached thereto
for US$242,225.00 represented the principal balance due to Citibank as of March 17, 1983 under the promissory note
executed by PISC, the proceeds of which were used for the repair and conversion of M/V Asean Liberty. Thus, on March 30,
1983, CBC instructed its correspondent Irving Trust Co., by cable, to pay to Citibank the amount of US$242,225.00. On the
same date, Irving Trust Co. advised private respondent CBC by mail that the amount of US$242,225.00 had been debited
against CBCs Account No. 8033278269 and remitted to Citibank.viii[8]

On May 10, 1983, for failure of PISC to settle its obligations in the amount of US$64,789,470.96, petitioner PNB conducted,
thru the Sheriffs Office, an auction sale of the mortgaged vessels, except for the vessel M/V Asean Objective. Petitioner
NIDC emerged as the highest bidder in these auctions.ix[9]

On May 27, 1983, claiming that the foreclosure sale of its mortgaged vessels was illegal, unjust, irregular, and oppressive,
PISC instituted before the Regional Trial Court of Makati, a civil casex[10] against petitioners for the annulment of the
foreclosure and auction sale of its vessels and damages.

As accurately narrated in the trial courts Order and adopted by the Court of Appeals in its Decision of March 21, 1997, the
following proceedings transpired in the lower court:

Records show that on May 27, 1983, PISC (Philippine International Shipping Corporation) filed suit against National
Investment and Development Corporation (NIDC, for short) and Philippine National Bank (PNB, for short) for annulment of
foreclosure of mortgage and auction sale with damages vis--vis the sale on foreclosure of vessels Asean Mission, Asean
Knowledge, Asean Nations and Asean Greatness (as well as Asean Liberty and Asean Independence). NIDC answered the
complaint, and in an amended answer impleaded additional counterclaim defendants. In an Order dated September 29,
1984, then Judge Jose L. Coscolluela, Jr. dismissed the complaint as against PNB and the counterclaimed defendants. And
under date of November 3, 1986, the complaint itself against and the NIDC counterclaims were dismissed with prejudice.

In the meantime, NIDC acquired the vessels as highest bidder in the foreclosure thereof initiated by PNB, NIDC having
thereafter disposed of said vessels in favor of the National Steel Corporation (NSC).

Complaints in intervention were filed by and for Unitor Ships Services PTE, Ltd., IMO Industries AB, UDDVALLARVARVET
AB, Hyundai, Shipyard Co., Lloyds, China bank, Chiang Tung Enterprises Co., Ltd., Pan Asia, Inc., and HANMF Marine
Service, Co., Ltd., for recovery upon maritime liens against the proceeds of the sale of the foreclosed vessels. The parties
concerned, except for intervenors Lloyds and China Bank, eventually submitted a Compromise Agreement dated July 12,
1989, and made the basis for the Decision of August 23, 1989.

As first stated, there now remain only Lloyds and China Bank claims in intervention, recovery upon which is covered by a
PNB bank guarantee therefor if found matters of entitlement (sic) by said intervenors.

Intervenor Lloyds claim is for the service of herein intervenor Lloyds Register of Shipping to class aforementioned vessels
(M/V Asean Nations and Asean Greatness) during the period covering July 22, 1981 to July 14, 1983 and the cost for said
maritime surveys in the sum of HK$65,930.00, UKC10,363.45 and P9,653.00 said to have been unpaid by PISC despite
demands. NIDC traversed the Lloyds claim as not being preferred maritime liens and in any event inferior in nature.

Intervenor China Banks claims are predicated on (i) a China Bank Standby Letter of Credit in favor of Citibank, N. A.
purportedly to cover repair and partial conversion of M/V Asean Liberty, to the extent of US$242,225.00 paid by China Bank
to Citibank, and said to be now owing by PISC together with stipulated interest; (ii) a China Bank loan of US$2,700,000.00 as
evidenced by a promissory note, the loan proceeds said to have allowed PISC to reduce overhead expenses and afford it
competitive advantage in overseas shipping, and to pay for bunker fuel, defray port expenses and storage, container rental
and insurance, as well as salaries and wages of crew members; and (iii) a China bank commercial letter of credit to PISC in
favor of Bank of America, particularly a BA Draft for US$648,002.54 said to have been applied towards vessel repair and
conversion by the China Shipbuilding Corporation of Taiwan, together with stipulated interests due from PISC. China Banks
claims are premised on the above as being preferred maritime liens. NIDC rejects said claims as not being maritime liens,
much less preferred maritime liens.

Shortly after the undersigned penning Judge assumed his duties in this Court, Lloyds and China Bank were enjoined to
furnish opposite counsel with copies of the documentation of their respective claims, to obviate the necessity of adducing
evidence in point on matters capable of stipulation. Thus, failing formulation of any amicable settlement in the manner arrived
at by all other intervenors, pre-trial proceedings for the subject last remaining claims in intervention by and for Lloyds and
China Bank resulted in an August 9, 1991 Pre-Trial Order which set forth-

A. NATURE OF THE CASE

Claimant-intervenor Lloyds Register of Shipping seeks recovery as unpaid creditor of HK$65,930., UK Pounds C10,363.45
and P9,653.00 as being in the nature of preferred maritime liens on the vessels M/V ASEAN NATIONS and ASEAN
GREATNESS, representing costs for maritime services rendered for said vessels for the period July 22, 1981 to July 14,
1983.

Intervenor-claimant China Banking Corporation seeks recovery, as being in the nature of a preferred maritime lien, of the
sum of US$3,890,227.53, representing the totality of loans extended by said intervenor-claimant said to have been expended
in financing repair and conversion costs, for expenses and storage container rentals and insurance premium paid out by it.

Plaintiffs admit the recoverability of said claims as being in the nature of preferred maritime liens, whereas PNB-NIDC
contests the said claims.

B. STIPULATIONS AND ADMISSIONS.

Plaintiffs, PNB-NIDC and intervenor-claimant Lloyds Register of Shipping stipulate and admit that the totality of its claims as
fully supported by documentation already verified by the parties are in the sums of HK$65,930,00, UKC10,363.45 and
P9,653.00.

Plaintiffs, PNB-NIDC and intervenor-claimant China Banking Corporation stipulate and admit that the totality of its claim is in
the sum of US$3,870,227.53 as fortified by documentation already verified in point.

C. ISSUES.

The parties have agreed to limit the resolution of the last two remaining claims in intervention aforementioned to the following
legal questions:

i. Whether or not said claims, in the context in which they sought to be recovered, are preferred maritime lien as
would entitle said claims to recover, and

ii. Whether or not assuming recoverability thereon as being in the nature of maritime liens, such recovery may be
allowed in relation with PNBs being the mortgagee of the assets from which recovery is sought.

Considering that the issues to be addressed are purely legal in nature, presentation of evidence and/or witnesses in point is
unnecessary.xi[11]

After the parties submitted their respective memoranda, the trial court issued on March 4, 1992 an Order dismissing the
complaint-in-intervention filed by private respondent CBC for lack of merit. In dismissing the complaint-in-intervention, the
trial court ruled that the claim of private respondent CBC was not a preferred maritime lien but was merely a loan extended to
PISC by CBC.

Private respondent CBC appealed the Order of the trial court to the Court of Appeals. In its appeal, private respondent CBC
imputed the following errors allegedly committed by the trial court:

a) the trial court erred in holding that the loans extended by China Banking Corporation to the Philippine International
Shipping Corporation did not create maritime liens.

b) assuming that the loans are not themselves maritime liens, the trial court erred in holding that the China Banking
Corporation did not acquire the maritime liens of Philippine International Shipping Corporation's creditors by subrogation.

For its part, herein petitioners PNB/NIDC raised as an issue in its Appellees Brief before the Court of Appeals the lack of
jurisdiction of the appellate court to entertain and pass upon the appeal interposed by CBC on the ground that the issues
raised therein were purely legal; and that the appeal of CBC should have been lodged with the Supreme Court by petition for
review on certiorari.xii[12]

On March 21, 1997, the Court of Appeals promulgated its questioned decision, the dispositive portion of which states:

WHEREFORE, insofar as the appellant CBC is concerned, the appealed Order is hereby SET ASIDE and judgment is
rendered:
(a) Directing the appellee Philippine National Bank/National Investment and Development Corporation to pay the appellant
China Banking Corporation from the proceeds of the foreclosure sale of M/V Asean Liberty the amount of US$242,225.00 or
its Philippine Peso Equivalent at the time of payment, with interest thereon at the legal rate from November 7, 1984, the date
of filing of CBCs complaint-in-intervention, until fully paid; and

(b) Ordering the appellee Philippine International Shipping Corporation to pay the same CBC the amounts of US$648,002.54
and US$2.7 Million plus stipulated interests, arrangement fees, swap premiums, expenses, losses, taxes and penalties,

In the said decision, the appellate court held petitioners PNB/NIDC liable to CBC only for the amount of US$242,225.00,
which was used for the repair and conversion of the M/V Asean Liberty, as it was only this amount which CBC was able to
prove as being a preferred maritime lien. Moreover, such amount was to be paid by petitioners PNB/NIDC from the proceeds
of the foreclosure sale of the vessel M/V Asean Liberty. Private respondent CBCs other claims of US$648,000.54 and
US$2.7 Million were found by the appellate court as not being in the nature of maritime liens and as such, recoverable only
from PISC, not from herein petitioners PNB/NIDC.

Not satisfied with the decision of the appellate court, petitioners PNB/NIDC institute the present petition for review on
certiorari where they raise the following issues:

I.WHETHER OR NOT THE COURT OF APPEALS HAS APPELLATE JURISDICTION TO ENTERTAIN AND PASS UPON
THE APPEAL INTERPOSED BY PRIVATE RESPONDENT CBC FROM THE ORDER OF THE TRIAL COURT OF MARCH
4, 1992 WHICH INVOLVED PURE QUESTIONS OF LAW.

II.WHETHER OR NOT PRIVATE RESPONDENT CBCS CLAIM FOR US$242,225.OO AS EVIDENCED BY ITS
IRREVOCABLE LETTER OF CREDIT NO. 79/4174 OF SEPTEMBER 12, 1979 IS IN THE NATURE OF A MARITIME LIEN
UNDER THE PROVISIONS OF P.D. NO. 1521; AND IF SO, WHETHER OR NOT SAID MARITIME LIEN IS PREFERRED
OVER THE MORTGAGE LIEN OF PETITIONER PNB/NIDC ON THE FORECLOSED VESSEL M/V ASEAN LIBERTY.

On the first issue, petitioners argue that the Court of Appeals committed grave error in law in taking cognizance of the appeal
interposed by private respondent CBC from the Order of the trial court dated 4 March 1992 involving as it does pure
questions of law. They claim that the Court of Appeals had no jurisdiction to entertain and pass upon the appeal interposed
by private respondent CBC as the issues raised therein are purely legal. As such, petitioners continue, the appeal of CBC
should have been lodged directly with the Supreme Court by way of petition for review on certiorari under Rule 45 of the
Revised Rules of Court. Citing the pronouncement of this Court en banc in Anacleto Murillo vs. Rodolfo Consulxiii[14], the
petitioners conclude that the appeal made by private respondent CBC to the Court of Appeals should have been dismissed
by the respondent court for lack of jurisdiction.

It is true that the decisions of the Regional Trial Court may be directly reviewed by the Supreme Court on petition for review if
pure questions of law are raised. Circular 2-90,xiv[15] which petitioners cite and which outlined the applicable rules of
procedure on this matter at that time, indirectly states that cases from the Regional Trial Court raising only questions of law
should be taken to the Supreme Court. Paragraphs No. 4(c) and (d) of the said Circular provide as follows:

4. Erroneous Appeals. An appeal taken to either the Supreme Court of the Court of Appeals by the wrong or inappropriate
mode shall be dismissed.

(c) Raising issues purely of law in the Court of Appeals or appeal by wrong mode. If an appeal under Rule 41 is
taken from the Regional Trial Court to the Court of Appeals and therein the appellant raises only questions of law, the appeal
shall be dismissed, issues purely of law not being reviewable by said court. xxx

(d) No transfer of appeals erroneously taken. No transfers of appeals erroneously taken to the Supreme Court or to the Court
of Appeals to whichever of these Tribunals has appropriate appellate jurisdiction will be allowed; continued ignorance or
willful disregard of the law on appeals will not be tolerated.

From the cited provisions, it is clear that the Court of Appeals does not have jurisdiction over appeals from the Regional Trial
Court that raise purely questions of law. Appeals of this nature should be raised to the Supreme Court.xv[16] Furthermore,
transfer of erroneous appeals is not allowed and the tribunal which receives the erroneous appeal should perforce dismiss
the same for lack of jurisdiction.

Notwithstanding this legal rule, the appeal brought before the Court of Appeals by the private respondent CBC must first be
analyzed as to whether the same raised questions or errors of law alone. If the petition raised only questions of law, then the
Court of Appeals had no jurisdiction to take cognizance of the case and should have dismissed the case outright. On the
other hand, if the petition raised only questions of fact or questions of both fact and law, then the Court of Appeals correctly
exercised jurisdiction over the issue.xvi[17]

As such, even if, as in this case, the documentary evidence adduced by the parties was admitted without objection, a
question of fact is still involved when the query necessarily invites the calibration of the whole evidence including the
relevancy of surrounding circumstances and their relation to each other.

On this point, we note with approval the following justification made by the respondent court in assuming jurisdiction over the
case:

A question of fact has been distinguished from a question of law in this wise:
At this point, the distinction between a question of fact and a question of law must be clear. As distinguished from a question
of law which exists when the doubt or difference arises as to what the law is on certain state of facts there is a question of
fact when the doubt or difference arises as to the truth or the falsehood of alleged facts; or when the query necessarily invites
calibration of the whole evidence considering mainly the credibility of witnesses, existence and relevancy of specific
surrounding circumstances, their relation to each other and to the whole and probabilities of the situation.(Bernardo vs. Court
of Appeals, 216 SCRA 224)

Stated differently, a question of law does not involve an examination of the probative value of the evidence presented by the
litigants or any of them; otherwise, if such examination and re-evaluation of the evidence is called for, a question of fact is
raised.

In the decision from which the CBC appealed, the trial court primarily held that the former is a mere money lender and not a
maritime lienor. In its appeal, the CBC argues that in so holding, the trial court disregarded the maritime purposes for which
the loans it extended to the Philippine International Shipping Corporation (PISC) were availed of and used. The issue thus
raised cannot be judiciously resolved without reviewing the probative weight of the evidence on record consisting in the main
of the various documents, contracts and transactions attached to CBCs complaint-in-intervention. It is, therefore, indubitable
that mixed questions of fact and of law are involved over which this Court has jurisdiction.xvii[18]

Thus, in resolving the issues raised by private respondent in the Court of Appeals, the appellate court had to make a factual
inquiry, among others, on the nature and terms of the contracts among the different parties, the relationship of the different
parties with one another and with respect to the vessels involved in the case, how the proceeds of the loans were used, and
the correct dates when the maritime and mortgage liens were constituted on the vessels. The determination of these facts is
crucial as it will resolve whether the amount advanced by respondent CBC is in the nature of a maritime lien and if so,
whether the lien is superior to the mortgage lien of petitioners. If the appellate court, in the exercise of its review power, finds
that the amount advanced by CBC was used for the repair of the vessels, then a mortgage lien was indubitably established
over the shipping vessels. Moreover, a determination of the dates when the respective liens of the parties were constituted
over the vessels will answer the question as to which lien is preferred over the other. In short, in order to address fully the
issues raised by the parties in their pleadings, the appellate court necessarily had to make factual findings.

Verily, the issues raised by private respondent in the 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.xviii[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:

The Owner will, before the commencement of work, provide an Irrevocable Documentary Credit for the Contract Price plus
an estimate to cover the cost of extra work. The banks and wording of the Credit are to be agreed by the Contractor.
 b) Payment will be:

Before departure of vessel from Contractors yard: 20% of contract price;

60 days from departure of vessel from Contractors yard: 40% of contract price;

90 days from departure of vessel from Contractors yard: 40% of contract price.xix[20]

The foregoing provision of the contract agreement indubitably shows that credit was given to the vessel M/V Asean Liberty
by Hongkong United Dockyards, Ltd. and as a result, a maritime lien in favor of Hongkong United Dockyards, Ltd. was
constituted on the said vessel by virtue of Section 21 of the Ship Mortgage Decree of 1978.

It is the contention of private respondent CBC however, that it ultimately acquired the maritime lien of Hongkong United
Dockyards, Ltd. over the vessel M/V Asean Liberty. As shown by the documentary evidence offered by private respondent
CBC, its proof that it acquired said maritime lien is as follows:

(a) On March 12, 1979, PISC entered into a Contract Agreement with Hongkong United Dockyards, Ltd., as contractor, for
the repair and conversion of its vessel M/V Asean Liberty for a contract price of HK$2,200,000.00xx[21];

(b) On May 28, 1979, the Central Bank of the Philippines approved PISCs request to open with private respondent China
Banking Corporation a Standby Letter of Credit for US$545,000.00 in favor of Hongkong United Dockyards, Ltd. This May
28, 1979 letter stated that the credit for US$545,000 would be used to cover the partial conversion cost of the vessel Asean
Liberty. On June 20, 1979, the Central Bank approved the request of PISC to change the beneficiary of the said Standby
Letter of Credit from Hongkong United Dockyards, Ltd. to Citibankxxi[22];

(c) On June 15, 1979, PISC executed an Application and Agreement with private respondent CBC for the opening of a
Standby Letter of Credit for US$545,000.00 in favor of Citibank, N.A., Makati, Metro Manila as beneficiary. The agreement
confirmed that the letter of credit would be used to guarantee the loan in the amount of US$545,000.00, the proceeds of
which will be used to finance partially the conversion cost of the vessel MV ASIAN LIBERTYxxii[23];

(d) On September 12, 1979, private respondent CBC issued an Irrevocable Standby Letter of Credit in favor of Citibank for
any sum or sums not exceeding a total of US$545,000.00. Per express terms of the Letter of Credit, its purpose was to
guarantee (Citibanks) loan to Philippine International Shipping Corporation, the proceeds of which loan, according to
accountee, are to finance partially the conversion cost of the vessel M/V ASIAN LIBERTYxxiii[24];

(e) Pursuant to its loan agreement with Citibank, PISC executed on September 17, 1979 a promissory note for
US$545,000.00 in favor of Citibank, promising to pay the latter the principal sum of US$545,000.00 in nine (9) consecutive
semi-annual installments of US$60,555.00 commencing one (1) year from date hereof or on September 17, 1980 until
September 17, 1984xxiv[25];

(f) On March 25, 1983, Citibank sent a letter to private respondent CBC calling and drawing on CBCs Letter of Credit No.
79/4174 and certifying that the draft attached thereto for US$242,225.00 represents the principal balance due to Citibank as
of March 17, 1983 under PISCs Promissory Note of September 17, 1979xxv[26]. This March 25, 1983 letter likewise
indicated that the loan due from PISC was used to finance partially the conversion cost of the vessel M/V Asian Liberty;

(g) On March 30, 1983, private respondent CBC instructed by cable its correspondent, Irving Trust Co., to pay Citibank
US$242,225.00. On the same date, Irving Trust Co., advised private respondent CBC by mail that the sum of
US$242,225.00 was debited against CBCs Account No. 8033278269 and remitted to the Citibank Foreign Currency Deposit
Unit, Makatixxvi[27];

From the documentary evidence thus presented, it is clear that private respondents claim is predicated on the payment it
made to Citibank by virtue of the Irrevocable Letter of Credit it established in the latters favor. Per express provisions of the
Letter of Credit, the same was established to guarantee your (Citibank) loan in the principal amount of US$545,000.00 to
Philippine International Shipping Corporation, the proceeds of which loan, according to accountee, are to finance partially the
conversion cost of the vessel M/V Asean Liberty.xxvii[28]

In short, private respondent CBC was a guarantor of the loan extended by Citibank to PISC. It was Citibank, which advanced
the money to PISC. It was only upon the failure of PISC to fulfill its obligations under its promissory note to Citibank that
private respondent CBC was called upon by Citibank to exercise its duties under the Standby Letter of Credit.

It is the holding of the appellate court, however, that private respondent stepped into the shoes of Hongkong United
Dockyards, Ltd. by legal subrogation and thus acquired the maritime lien of the latter over the vessel M/V Asean Liberty.
Thus:

It is not disputed that CBCs claim for US$242,225.00 and US$648,002.54 refer to the repair and conversion of two (2) of
PISCs vessels, namely M/V Asean Liberty and M/V Asean Mission, undertaken by Hongkong United Dockyards, Ltd. and the
China Shipbuilding Corporation of Taiwan, respectively, upon the order of the owner, as deposed by George Lim, the
President of the PISC. Such being the case, maritime liens on the vessels concerned arose conformably with the
aforequoted provision of Section 21 of P.D. No. 1521. True it is that under the law the persons entitled to the lien are the
Hongkong United Dockyards, Ltd. and the China Shipbuilding Corporation of Taiwan, they being the ones who furnished the
repair works. However, since it was CBC who paid off these lienors, it stepped into the shoes of the latter by subrogation.
This is the prevailing doctrine in American jurisprudence which holds that: A creditor who advances money specifically for the
purpose of discharging a maritime lien is subrogated to the lienors rights. Significantly, the Federal Maritime Lien Act, like our
Ship Mortgage Decree of 1978, provides that, any person furnishing repairs, supplies, towage, use of drydock or marine
railway, or other necessaries, to any foreign or domestic vessel on the order of the owner of such vessel, or of a person
authorized by the owner of such vessel, or of a person authorized by the owner has a maritime lien on the vessel which may
be enforced by suit in rem. The only difference is that under the Federal Maritime Lien Act, it is not necessary to allege or
prove that the credit was given to the vessel. Hence, insofar as the creation of the lien and the persons entitled to the lien are
concerned, American jurisprudence is highly persuasive. Furthermore, Article 1302 (2) of our Civil Code explicitly provides:

Art. 1302 (2). It is presumed that there is legal subrogation:

(2) When a third person not interested in the obligation pays with the express or tacit approval of the debtor;

Accordingly, since CBCs payment to the lienors was with the express consent of the debtor owner of the vessels repaired,
legal subrogation took place in CBCs favor.

Petitioners do not question the abovequoted rationale of the Court of Appeals. It takes exception however to the appellate
courts finding and conclusion that it was ultimately private respondent CBC which paid off the maritime lienor and that the
US$545,000.00 advanced by Citibank was actually paid to the persons who furnished the repairs on the vessels. On this
point, petitioners argue that the entirety of the documentary evidence of private respondent CBC does not show that the
latter actually paid off the maritime lienholder for the repair of M/V Asean Liberty as required by Section 21 of the Ship
Mortgage Act of 1978.xxviii[29] Furthermore, petitioners claim that the respondent court committed serious error in law when
it considered and gave credence to the written deposition of Mr. George Lim, the President of PISC, as basis for the said
finding considering that the same had earlier been denied admission by the trial court.

There is no merit in the contentions of petitioners.

The provisions of our Ship Mortgage Decree of 1978 were patterned quite closely after the U.S. Ship Mortgage Act of
1920.xxix[30] Significantly, the Federal Maritime Lien Act of the United States, like our Ship Mortgage Decree of 1978,
provides that any person furnishing repairs, supplies, towage, use of drydock, or marine railway, or other necessaries, to any
foreign or domestic vessel on the order of the owner of such vessel, or of a person authorized by the owner has a maritime
lien on the vessel, which may be enforced by suit in rem.xxx[31] Being of foreign origin, the provisions of the Ship Mortgage
Decree of 1978 may thus be construed with the aid of foreign jurisprudence from which they are derived except insofar as
they conflict with existing laws or are inconsistent with local customs and institutions.

As held by the public respondent Court of Appeals, those who provide credit to a master of a vessel for the purpose of
discharging a maritime lien also acquire a lien over the said vessel. Under American jurisprudence, (f)urnishing money to a
master in good faith to obtain repairs or supplies or to remove liens, in order to forward the voyage of the vessel, raises a lien
just as though the things (for which) money was obtained to pay for had been furnished by the lender.xxxi[32] Likewise,
(a)dvances to discharge maritime liens create a lien on the vessel, and one advancing money to discharge a valid lien gets a
lien of equal dignity with the one discharged.xxxii[33] There is no reason why these doctrines cannot be given persuasive
application in the instant case considering that they do not violate or contravene any of our existing laws. Moreover, as
pointed out by the appellate court, these doctrines are in accord with our provisions on subrogation particularly Art. 1302,
paragraph 2 of the New Civil Code which provides that there is legal subrogation when a third person, not interested in the
fulfillment in the obligation, pays with the express or tacit approval of the debtor.

Under these doctrines, a person who extends credit for the purpose of discharging a maritime lien is not entitled to the said
lien where the funds were not furnished to the ship on the order of the master and there was no evidence that the money was
actually used to pay debts secured by the lien.xxxiii[34] As applied in the instant case, it becomes necessary to prove that
the credit advanced by Citibank to PISC was actually utilized for the repair and conversion of the vessel M/V Asean Liberty.
Otherwise, Citibank could not have acquired the maritime lien of Hongkong United Dockyards, Ltd. over the vessel M/V
Asean Liberty.

On this point, we agree with the position of private respondent that the question of whether or not the proceeds of the loans
extended by Citibank were used for the repair and conversion of M/V Asean Liberty is a factual issuexxxiv[35] which the
Court cannot review absent a showing that it was arbitrarily resolved.xxxv[36]

Contrary to the assertions of petitioners, the records are replete with documents that show that the proceeds of the loans
were used for the repair and conversion of the vessel M/V Asean Liberty. Even without the written deposition of Mr. George
Lim, there is still sufficient documentary evidence in the records supporting the appellate courts findings. The
correspondences between PISC and the Central Bank, the Application and Agreement, and the Standby Letter of Credit itself
explicitly state that the proceeds of the loan applied for by PISC are to be used to finance partially the conversion cost of the
vessel M/V Asean Liberty. Moreover, the March 25, 1983 letter of Citibank to private respondent CBC drawing on the latters
letter of credit, confirmed that the loan due from PISC was used to finance partially the conversion cost of the said vessel.

In the presence of such documentary evidence, which were admitted without objection from the petitioners, we cannot say
that the Court of Appeals resolved the issue arbitrarily. The appellate courts finding that the amount sought to be recovered
by petitioner was actually used for the repair and conversion of the vessel M/V Asean Liberty is based on substantial
evidence.

From the foregoing, it is clear that the amount used for the repair of the vessel M/V Asean Liberty was advanced by Citibank
and was utilized for the purpose of paying off the original maritime lienor, Hongkong United Dockyards, Ltd. As a person not
interested in the fulfillment of the obligation between PISC and Hongkong United Dockyards, Ltd., Citibank was subrogated
to the rights of Hongkong United Dockyards, Ltd. as maritime lienor over the vessel, by virtue of Article 1302, par. 2 of the
New Civil Code. By definition, subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him
in all his rights.xxxvi[37] Considering that Citibank paid off the debt of PISC to Hongkong United Dockyards, Ltd. it became
the transferee of all the rights of Hongkong United Dockyards, Ltd. as against PISC, including the maritime lien over the
vessel M/V Asean Liberty.

Private respondent CBC, as guarantor, was itself subrogated to all the rights of Citibank as against PISC, the latters debtor.
Article 2067 of the New Civil Code provides that (t)he guarantor who pays is subrogated by virtue thereof to all the rights
which the creditor had against the debtor. Private respondent, having paid off the debt of PISC to Citibank, was therefore,
subrogated to all the rights Citibank had against its debtor PISC. Considering that Citibank had a maritime lien over the
vessel M/V Asean Liberty, private respondent was likewise subrogated to this right when it paid off Citibank under the
contract of guarantee.

Having thus established that private respondent CBC possessed a maritime lien over the vessel M/V Asean Liberty, the next
issue is whether the said maritime lien is preferred over the mortgage lien of petitioners.

In the case at bench, petitioners mortgage lien arose on September 25, 1979 when the said mortgage was registered with
the Philippine Coast Guard Headquarters.xxxvii[38] As such, in order for the maritime lien of private respondent CBC to be
preferred over the mortgage lien of petitioners, the same must have arisen prior to the recording of the mortgage on
September 25, 1979.

On this point, petitioners argue that inasmuch as the Standby Letter of Credit was in the nature of a guarantee, the right of
private respondent CBC to claim or to collect the maritime lien arose only at the time CBC actually paid off the said lien to
Citibank on March 30, 1983. Otherwise stated, it is the contention of petitioners that private respondent CBCs maritime lien
under its Standby Letter of Credit No. 79/4174 arose only on March 30, 1983 when CBC actually paid off the outstanding
obligation of PISC to Citibank.xxxviii[39] Considering that its mortgage lien arose on September 25, 1979, petitioners thus
conclude that its lien is preferred as against private respondent CBCs maritime lien.

There is no merit in this contention.

As stated by a noted commentator on the subject, a maritime lien constitutes a present right of property in the ship, a jus in
re, to be afterward enforced in admiralty by process in rem. From the moment the claim or privilege attaches, it is inchoate,
and when carried into effect by legal process, by a proceeding in rem, it relates back to the period when it first
attached.xxxix[40]

In the case at bench, the maritime lien over the vessel M/V Asean Liberty arose or was constituted at the time Hongkong
United Drydocks, Ltd. made repairs on the said vessel on credit. As such, as early as March 12, 1979, the date of the
contract for the repair and conversion of M/V Asean Liberty, a maritime lien had already attached to the said vessel. When
Citibank advanced the amount of US$242,225.00 for the purpose of paying off PISCs debt to Hongkong United Dockyards,
Ltd., it acquired the existing maritime lien over the vessel. When private respondent honored its contract of guarantee with
Citibank on March 30, 1983, it likewise acquired by subrogation the maritime lien that was already existing over the vessel
M/V Asean Liberty. Thus, when private respondent CBC chose to exercise its right to the maritime lien during the
proceedings in the trial court, it was actually enforcing a privilege that attached to the ship as early as March 12, 1979.

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

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

SO ORDERED.