POLIAND INDUSTRIAL LIMITED, petitioner, vs.

NATIONAL DEVELOPMENT COMPANY, DEVELOPMENT

BANK OF THE PHILIPPINES, and THE HONORABLE COURT OF APPEALS (Fourteenth Division),
respondents.

[G.R. No. 143877. May 19, 2006.]

NATIONAL DEVELOPMENT COMPANY, petitioner, vs. POLIAND INDUSTRIAL LIMITED, respondent.

RESOLUTION

TINGA, J p:

For resolution is the "Motion For Leave to File And To Admit The Attached Second Motion For Partial
Reconsideration" filed by Poliand Industrial Limited (POLIAND), seeking the partial review of the Court's
Resolution dated November 23, 2005. Poliand is the petitioner in G.R. No. 143866 and the respondent in
G.R. No. 143877. On August 22, 2005, the Court promulgated a consolidated Decision in G.R. Nos.
143866 & 143877, the dispositive portion of which reads:

WHEREFORE, both Petitions in G.R. No. 143866 and G.R. No. 143877 are DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 53257 is MODIFIED to the extent that National Development
Company is liable to Poliand Industrial Limited for the amount of One Million One Hundred Ninety Three
Thousand Two Hundred Ninety Eight US Dollars and Fifty Six US Cents (US$ 1,193,298.56), plus interest
of 12% per annum computed from 25 September 1991 until fully paid. In other respects, said Decision is
AFFIRMED. No pronouncement as to costs. IcTaAH

SO ORDERED.

Both POLIAND and National Development Company (NDC) separately filed motions for partial
reconsideration. Poliand, for its part, asserted that the computation of interest should be reckoned from
September 12, 1984, the date of the last foreclosure sale of the vessels, in conformity with the
dispositive portion of the Court of Appeals' Decision. The Court denied the separate motions of Poliand
and NDC in its November 23, 2005 Resolution. More than simply denying Poliand's motion for
reconsideration, said Resolution passed upon for the first time the issue on the computation of interest
and, thus, modified the August 22, 2005 Decision by reckoning the computation of interest from the
date of the finality of judgment. Not satisfied with the Court's ruling, Poliand filed the instant
subsequent motion for reconsideration with leave of court, praying in the alternative that the interest
rate should be computed from September 25, 1991, the date of extrajudicial demand, that is, in
conformity with the tack ordered in the Decision dated August 22, 2005.

Ordinarily, no second motion for reconsideration of a judgment or final resolution by the same party
shall be entertained. 1 Essentially, however, the instant motion is not a second motion for
reconsideration since the viable relief it seeks calls for the review, not of the Decision dated August 22,
2005, but the November 23, 2005 Resolution which delved for the first time on the issue of the
reckoning date of the computation of interest. In resolving the instant motion, the Court will be
reverting to the Decision dated August 22, 2005. In so doing, the Court will be shunning further delay so
as to ensure that finis is written to this controversy and the adjudication of this case attains finality at
the earliest possible time as it should.

After going over the instant motion, the Court is persuaded to take a fresh scrutiny of the facts and
circumstances obtaining herein and accordingly modify its finding that Poliand's claim cannot be
considered due and demandable until the finality of the Court's Decision. Indeed, there are certain
factual premises which the Court glossed over in arriving at such pronouncement. First, the trial court
had already made a factual finding to the effect that extrajudicial demands had been made by Poliand
on September 25, 1991 on NDC, Galleon Shipping Corporation and Development Bank of the Philippines,
not only with respect to the alleged loan accommodations granted to Galleon but also, in the
alternative, with respect to the maritime lien. Second, the extrajudicial demand on NDC for the payment
of the maritime lien was for a specified amount, which was the same amount prayed for in the
complaint and eventually upheld by the trial court. This fact indicates that upon extrajudicial demand,
Poliand's claim for the satisfaction of the maritime lien had already been ascertained. An account that
has been "liquidated" can also mean that the item has been made certain as to what, and how much, is
deemed to be owing. 2 The amount claimed and the date of demand being both certain, to arrive at the
liquidated amount would merely be a matter of mathematical computation. 3

The finding of the trial court that an extrajudicial demand was made by Poliand on September 25, 1991
on NDC for the payment of a determinate amount equivalent to its maritime lien, unmodified as it was
by the appellate court, constitutes adequate basis to conclude that as of said date, Poliand's claim was
already due and demandable. Such factual finding of the trial court, duly supported as it is by the
evidence on record, deserves great weight and respect and is binding on the Court. caIACE

Poliand's main stance that the interest payment on its maritime lien should be reckoned from the date
of the last foreclosure sale of the vessels has no merit, apart from being barred by the rule against
second motions for reconsideration.

Poliand contends that the Court's finding that the institution of the extrajudicial foreclosure proceedings
was tainted with bad faith provides the basis to reckon the computation of legal interest from the date
of the foreclosure sale. Suffice it to say, this theory has no basis in law. An act done in bad faith may be
the basis of some other award but not the award of legal interest. IaEACT

Next, Poliand argues that the payment of legal interest should be reckoned from the date of the last
foreclosure sale of the vessels or on September 12, 1984 on the basis of Section 17 (a) of Presidential
Decree No. 1521. 4 The provision is inapplicable to the question of interest payment as it merely
enumerates the prioritized liens which are entitled to satisfaction upon the sale of a mortgaged vessel.

WHEREFORE, the instant "second" Motion for Partial Reconsideration dated December 30, 2005 is
GRANTED. The dispositive portion of the Decision dated August 22, 2005 in G.R. No. 143866 and G.R.
No. 143877 is REINSTATED in full.

SO ORDERED.
Puno, Austria-Martinez, Callejo and Chico-Nazario, JJ., concur.

Footnotes

[G.R. No. 143866. August 22, 2005.]

POLIAND INDUSTRIAL LIMITED, petitioner, vs. NATIONAL DEVELOPMENT COMPANY, DEVELOPMENT

BANK OF THE PHILIPPINES, and THE HONORABLE COURT OF APPEALS (Fourteenth Division),
respondents.

[G.R. No. 143877. August 22, 2005.]

NATIONAL DEVELOPMENT COMPANY, petitioner, vs. POLIAND INDUSTRIAL LIMITED, respondent.

The Office of the Government Corporate Counsel for NDC, et al.

Villaraza & Angcangco for Poliand Industrial, Limited.

SYLLABUS

1. POLITICAL LAW; LETTERS OF INSTRUCTION; GENERALLY, LETTERS OF INSTRUCTION DO NOT

HAVE THE FORCE AND EFFECT OF A LAW AND CANNOT BE A VALID SOURCE OF OBLIGATION. As a
general rule, letters of instructions are simply directives of the President of the Philippines, issued in the
exercise of his administrative power of control, to heads of departments and/or officers under the
executive branch of the government for observance by the officials and/or employees thereof. Being
administrative in nature, they do not have the force and effect of a law and, thus, cannot be a valid
source of obligation. AECacS

2. ID.; ID.; ID.; EXCEPTION; PRESIDENT MARCOS ISSUED CERTAIN DECREES, ORDERS AND LETTERS
OF INSTRUCTION WHICH THE COURT HAS DECLARED AS HAVING THE FORCE AND EFFECT OF A STATUTE.
However, during the period when then President Marcos exercised extraordinary legislative powers,
he issued certain decrees, orders and letters of instruction which the Court has declared as having the
force and effect of a statute. As pointed out by the Court in Legaspi v. Minister of Finance, paramount
considerations compelled the grant of extraordinary legislative power to the President at that time
when the nation was beset with threats to public order and the purpose for which the authority was
granted was specific to meet the exigencies of that period[.]

3. ID.; ID.; ID.; ID.; CONDITIONS THAT MUST BE ESTABLISHED BEFORE A LETTER OF INSTRUCTION
MAY BE CONSIDERED A LAW. The following conditions must be established before a letter of
instruction may be considered a law: To form part of the law of the land, the decree, order or LOI must
be issued by the President in the exercise of his extraordinary power of legislation as contemplated in
Section 6 of the 1976 amendments to the Constitution, whenever in his judgment, there exists a grave
emergency or threat or imminence thereof, or whenever the interim Batasan Pambansa or the regular
National Assembly fails or is unable to act adequately on any matter for any reason that in his judgment
requires immediate action. Only when issued under any of the two circumstances will a decree, order,
or letter be qualified as having the force and effect of law. The decree or instruction should have been
issued either when there existed a grave emergency or threat or imminence or when the Legislature
failed or was unable to act adequately on the matter. The qualification that there exists a grave
emergency or threat or imminence thereof must be interpreted to refer to the prevailing peace and
order conditions because the particular purpose the President was authorized to assume legislative
powers was to address the deteriorating peace and order situation during the martial law period.
ETHaDC

4. ID.; ID.; ID.; ID.; LETTER OF INSTRUCTION NO. 1155 WAS IN THE NATURE OF A MERE
ADMINISTRATIVE ISSUANCE TO UNDERTAKE A POLICY MEASURE. Although LOI No. 1155 was
undoubtedly issued at the time when the President exercised legislative powers granted under
Amendment No. 6 of the 1973 Constitution, the language and purpose of LOI No. 1155 precludes this
Court from declaring that said LOI had the force and effect of law in the absence of any of the conditions
set out in Parong. The subject matter of LOI No. 1155 is not connected, directly or remotely, to a grave
emergency or threat to the peace and order situation of the nation in particular or to the public interest
in general. Nothing in the language of LOI No. 1155 suggests that it was issued to address the security of
the nation. Obviously, LOI No. 1155 was in the nature of a mere administrative issuance directed to
NDC, DBP and MARINA to undertake a policy measure, that is, to rehabilitate a private corporation.

5. MERCANTILE LAW; CORPORATION LAW; MERGER AND CONSOLIDATION OF CORPORATION;

MERGER SHALL ONLY BE EFFECTIVE UPON THE ISSUANCE OF A CERTIFICATE OF MERGER BY THE
SECURITIES AND EXCHANGE COMMISSION (SEC). Ordinarily, in the merger of two or more existing
corporations, one of the combining corporations survives and continues the combined business, while
the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving
corporation. The merger, however, does not become effective upon the mere agreement of the
constituent corporations. As specifically provided under Section 79 of said Code, the merger shall only
be effective upon the issuance of a certificate of merger by the Securities and Exchange Commission
(SEC), subject to its prior determination that the merger is not inconsistent with the Code or existing
laws. Where a party to the merger is a special corporation governed by its own charter, the Code
particularly mandates that a favorable recommendation of the appropriate government agency should
first be obtained. The issuance of the certificate of merger is crucial because not only does it bear out
SEC's approval but also marks the moment whereupon the consequences of a merger take place. By
operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its
rights, and properties as well as liabilities shall be taken and deemed transferred to and vested in the
surviving corporation. aEAIDH

6. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL BY CERTIORARI; GENERALLY, AN APPELLATE COURT

MAY ONLY PASS UPON ERRORS ASSIGNED; EXCEPTIONS. Generally, an appellate court may only pass
upon errors assigned. However, this rule is not without exceptions. In the following instances, the Court
ruled that an appellate court is accorded a broad discretionary power to waive the lack of assignment of
errors and consider errors not assigned: (a) Grounds not assigned as errors but affecting the jurisdiction
of the court over the subject matter; (b) Matters not assigned as errors on appeal but are evidently plain
or clerical errors within contemplation of law; (c) Matters not assigned as errors on appeal but
consideration of which is necessary in arriving at a just decision and complete resolution of the case or
to serve the interests of a justice or to avoid dispensing piecemeal justice; (d) Matters not specifically
assigned as errors on appeal but raised in the trial court and are matters of record having some bearing
on the issue submitted which the parties failed to raise or which the lower court ignored; (e) Matters
not assigned as errors on appeal but closely related to an error assigned; (f) Matters not assigned as
errors on appeal but upon which the determination of a question properly assigned, is dependent.

7. MERCANTILE LAW; CODE OF COMMERCE; ARTICLE 378 THEREOF GOVERNS THE SALE OF
VESSELS IN A FOREIGN PORT; NOT APPLICABLE IN CASE AT BAR. NDC cites Articles 578 and 580 of the
Code of Commerce to bolster its argument that the foreclosure of the vessels extinguished all claims
against the vessels including POLIAND's claim. Article 578 of the Code of Commerce is not relevant to
the facts of the instant case because it governs the sale of vessels in a foreign port. Said provision
outlines the formal and registration requirements in order that a sale of a vessel on voyage or in a
foreign port becomes effective as against third persons. On the other hand, the resolution of the instant
case depends on the determination as to which creditor is entitled to the proceeds of the foreclosure
sale of the vessels. Clearly, Article 578 of the Code of Commerce is inapplicable. DEcITS

8. ID.; PRESIDENTIAL DECREE NO. 1521 (SHIP MORTGAGE DECREE OF 1978); PREFERRED
MORTGAGE LIEN; SECTION 17 THEREOF REPEALED ARTICLE 580 OF THE CODE OF COMMERCE. Article
580, while providing for the order of payment of creditors in the event of sale of a vessel, had been
repealed by the pertinent provisions of Presidential Decree (P.D.) No. 1521, otherwise known as the Ship
Mortgage Decree of 1978. In particular, Article 580 provides that in case of the judicial sale of a vessel
for the payment of creditors, the debts shall be satisfied in the order specified therein. On the other
hand, Section 17 of P.D. No. 1521 also provides that in the judicial or extrajudicial sale of a vessel for the
enforcement of a preferred mortgage lien constituted in accordance with Section 2 of P.D. No. 1521,
such preferred mortgage lien shall have priority over all pre-existing claims against the vessel, save for
those claims enumerated under Section 17, which have preference over the preferred mortgage lien in
the order stated therein. Since P.D. No. 1521 is a subsequent legislation and since said law in Section 17
thereof confers on the preferred mortgage lien on the vessel superiority over all other claims, thereby
engendering an irreconcilable conflict with the order of preference provided under Article 580 of the
Code of Commerce, it follows that the Code of Commerce provision is deemed repealed by the provision
of P.D. No. 1521, as the posterior law.

9. ID.; ID.; ID.; IF IT IS CONSTITUTED FOR THE PURPOSE STATED UNDER SECTION 2 THEREOF, THE
MORTGAGE OBTAINS A PREFERRED STATUS. If the mortgage on the vessel is constituted for the
purpose stated under Section 2, the mortgage obtains a preferred status provided the formal requisites
enumerated under Section 4 are complied with. Upon enforcement of the preferred mortgage and
eventual foreclosure of the vessel, the proceeds of the sale shall be first applied to the claim of the
mortgage creditor unless there are superior or preferential liens, as enumerated under Section 17[.]
DHaEAS

10. ID.; ID.; ID.; ITS PROVISION ON THE ORDER OF PREFERENCE IN THE SATISFACTION OF THE
CLAIMS AGAINST THE VESSEL IS MORE APPLICABLE COMPARED TO THE CIVIL CODE PROVISIONS ON THE
CONCURRENCE AND PREFERENCE OF CREDITS. The provision of P.D. No. 1521 on the order of
preference in the satisfaction of the claims against the vessel is the more applicable statute to the
instant case compared to the Civil Code provisions on the concurrence and preference of credit. General
legislation must give way to special legislation on the same subject, and generally be so interpreted as to
embrace only cases in which the special provisions are not applicable.

11. ID.; ID.; ID.; MARITIME LIEN ARISING PRIOR IN TIME TO THE RECORDING OF THE PREFERRED
MORTGAGE IS CONSIDERED TO BE SUPERIOR TO THE LATTER. Before POLIAND's claim may be
classified as superior to the mortgage constituted on the vessel, it must be shown to be one of the
enumerated claims which Section 17, P.D. No. 1521 declares as having preferential status in the event of
the sale of the vessel. One of such claims enumerated under Section 17, P.D. No. 1521 which is
considered to be superior to the preferred mortgage lien is a maritime lien arising prior in time to the
recording of the preferred mortgage. Such maritime lien is described under Section 21, P.D. No. 1521[.] .
. . Under the aforequoted provision, the expense must be incurred upon the order of the owner of the
vessel or its authorized person and prior to the recording of the ship mortgage. Under the law, it must
be established that the credit was extended to the vessel itself.

12. ID.; ID.; ID.; EXPENSE ON THE VESSEL INDISPENSABLE TO THE MAINTENANCE AND NAVIGATION
OF THE VESSEL MAY PROPERLY BE TREATED AS A MARITIME LIEN FOR NECESSARIES. As stated in
Section 21, P.D. No. 1521, a maritime lien may consist in "other necessaries spent for the vessel." The
ship modification cost may properly be classified under this broad category because it was a necessary
expenses for the vessel's navigation. As long as an expense on the vessel is indispensable to the
maintenance and navigation of the vessel, it may properly be treated as a maritime lien for necessaries
under Section 21, P.D. No. 1521. With respect to the claim for salary and wages of the crew, there is no
doubt that it is also one of the enumerated claims under Section 17, P.D. No. 1521, second only to
judicial costs and taxes due the government in preference and, thus, having a status superior to DBP's
mortgage lien. cAISTC

13. REMEDIAL LAW; EVIDENCE; CREDIBILITY; GENERALLY, FINDINGS OF FACT OF LOWER COURTS
ARE DEEMED CONCLUSIVE AND BINDING UPON THE SUPREME COURT. All told, the determination of
the existence and the amount of POLIAND's claim for maritime lien is a finding of fact which is within the
province of the courts below. Findings of fact of lower courts are deemed conclusive and binding upon
the Supreme Court except when the findings are grounded on speculation, surmises or conjectures;
when the inference made is manifestly mistaken, absurd or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the factual findings of the trial and appellate courts are
conflicting; when the Court of Appeals, in making its findings, has gone beyond the issues of the case
and such findings are contrary to the admissions of both appellant and appellee; when the judgment of
the appellate court is premised on a misapprehension of facts or when it has failed to notice certain
relevant facts which, if properly considered, will justify a different conclusion; when the findings of fact
are conclusions without citation of specific evidence upon which they are based; and when findings of
fact of the Court of Appeals are premised on the absence of evidence but are contradicted by the
evidence on record. The Court finds no sufficient justification to reverse the findings of the trial court
and the appellate court in respect to the existence and amount of maritime lien.
14. MERCANTILE LAW; PRESIDENTIAL DECREE NO. 1521; PREFERRED MORTGAGE LIEN; THIRD
PERSON WHO SATISFIES THE OBLIGATION TO AN ORIGINAL MARITIME LIEN MAY CLAIM FROM THE
DEBTOR. The first argument is absurd. Although POLIAND or its predecessors-in-interest are not
sailors entitled to wages, they can still make a claim for the advances spent for the salary and wages of
the crew under the principle of legal subrogation. As explained in Philippine National Bank v. Court of
Appeals, a third person who satisfies the obligation to an original maritime lienor may claim from the
debtor because the third person is subrogated to the rights of the maritime lienor over the vessel.

15. CIVIL LAW; OBLIGATIONS AND CONTRACTS; STATUTE OF FRAUDS; INAPPLICABLE WHEN THERE
IS NO CONTRACT BETWEEN THE PARTIES. DBP's reliance on the Statute of Frauds is misplaced. Article
1403 (2) of the Civil Code, which enumerates the contracts covered by the Statute of Frauds, is
inapplicable. To begin with, there is no privity of contract between POLIAND or its predecessors-in-
interest, on one hand, and DBP, on the other. POLIAND hinges its claim on the maritime lien based on
LOI No. 1195 and P.D. No. 1521, and not on any contract or agreement.

16. ID.; PROPERTY; MODES OF ACQUIRING OWNERSHIP; PRESCRIPTION OF ACTIONS; PRESCRIPTIVE

PERIOD WAS TOLLED WHEN A WRITTEN DEMAND FOR THE SATISFACTION OF OBLIGATION WAS MADE.
Neither can DBP invoke prescription or laches against POLIAND. Under Article 1144 of the Civil Code,
an action upon an obligation created by law must be brought within ten years from the time the right of
action accrues. The right of action arose after January 15, 1982, when NDC partially paid off GALLEON's
obligations to POLIAND's predecessor-in-interest, Asian Hardwood. At that time, the prescriptive period
for the enforcement by action of the balance of GALLEON's outstanding obligations had commenced.
Prescription could not have set in because the prescriptive period was tolled when POLIAND made a
written demand for the satisfaction of the obligation on September 24, 1991, or before the lapse of the
ten-year prescriptive period. Laches also do not lie because there was no unreasonable delay on the part
of POLIAND in asserting its rights. Indeed, it instituted the instant suit seasonably. cHCIDE

17. MERCANTILE LAW; PRESIDENTIAL DECREE NO. 1521; PREFERRED MORTGAGE LIEN; MARITIME
LIEN IS INSEPARABLE FROM THE VESSEL AND UNTIL DISCHARGED, IT FOLLOWS THE VESSEL. All things
considered, however, the Court finds that only NDC is liable for the payment of the maritime lien. A
maritime lien is akin to a mortgage lien in that in spite of the transfer of ownership, the lien is not
extinguished. The maritime lien is inseparable from the vessel and until discharged, it follows the vessel.
Hence, the enforcement of a maritime lien is in the nature and character of a proceeding quasi in rem.
The expression "action in rem" is, in its narrow application, used only with reference to certain
proceedings in courts of admiralty wherein the property alone is treated as responsible for the claim or
obligation upon which the proceedings are based. Considering that DBP subsequently transferred
ownership of the vessels to NDC, the Court holds the latter liable on the maritime lien. Notwithstanding
the subsequent transfer of the vessels to NDC, the maritime lien subsists.

18. CIVIL LAW; DAMAGES; ATTORNEY'S FEES; WHEN IT CAN BE AWARDED. This Court finds no
reversible error with the award as upheld by the appellate court. Under Article 2208 of the Civil Code,
attorney's fees may be awarded inter alia when the defendant's act or omission has compelled the
plaintiff to incur expenses to protect his interest or in any other case where the court deems it just and
equitable that attorney's fees and expenses of litigation be recovered. SEcTHA

19. REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENT; WHERE THE INEVITABLE CONCLUSION FROM
THE BODY OF THE DECISION IS SO CLEAR AS TO SHOUT THAT THERE WAS A MISTAKE IN THE DISPOSITIVE
PORTION, THE BODY OF THE DECISION WILL PREVAIL. The general rule is that where there is conflict
between the dispositive portion or the fallo and the body of the decision, the fallo controls. This rule
rests on the theory that the fallo is the final order while the opinion in the body is merely a statement
ordering nothing. However, where the inevitable conclusion from the body of the decision is so clear as
to show that there was a mistake in the dispositive portion, the body of the decision will prevail. In the
instant case, it is clear from the trial court records and the Court of Appeals' Rollo that the bigger
amount awarded in the dispositive portion of the Court of Appeals' Decision was a typographical
mistake. Considering that the appellate court's Decision merely affirmed the trial court's finding with
respect to the amount of maritime lien, the bigger amount stated in the dispositive portion of the Court
of Appeals' Decision must have been awarded through inadvertence.

DECISION

TINGA, J p:

Before this Court are two Rule 45 consolidated petitions for review seeking the review of the Decision 1
of the Court of Appeals (Fourth Division) in CA-G.R. CV No. 53257, which modified the Decision of the
Regional Trial Court, Branch 61, Makati City in Civil Case No. 91-2798. Upon motion of the Development
Bank of the Philippines (DBP), the two petitions were consolidated since both assail the same Decision
of the Court of Appeals. aTHCSE

In G.R. No. 143866, petitioner Poliand Industrial Limited (POLIAND) seeks judgment declaring the
National Development Company (NDC) and the DBP solidarily liable in the amount of US$2,315,747.32,
representing the maritime lien in favor of POLIAND and the net amount of loans incurred by Galleon
Shipping Corporation (GALLEON). It also prays that NDC and DBP be ordered to pay the attorney's fees
and costs of the proceedings as solidary debtors. In G.R. No. 143877, petitioner NDC seeks the reversal
of the Court of Appeals' Decision ordering it to pay POLIAND the amount of One Million Nine Hundred
Twenty Thousand Two Hundred Ninety-Eight and 56/100 United States Dollars (US$1,920,298.56),
corresponding to the maritime lien in favor of POLIAND, plus interest.

ANTECEDENTS

The following factual antecedents are matters of record.

Between October 1979 and March 1981, Asian Hardwood Limited (Asian Hardwood), a Hong Kong
corporation, extended credit accommodations in favor of GALLEON totaling US$3,317,747.32. 2 At that
time, GALLEON, a domestic corporation organized in 1977 and headed by its president, Roberto Cuenca,
was engaged in the maritime transport of goods. The advances were utilized to augment GALLEON's
working capital depleted as a result of the purchase of five new vessels and two second-hand vessels in
1979 and competitiveness of the shipping industry. GALLEON had incurred an obligation in the total
amount of US$3,391,084.91 in favor of Asian Hardwood.

To finance the acquisition of the vessels, GALLEON obtained loans from Japanese lenders, namely, Taiyo
Kobe Bank, Ltd., Mitsui Bank Ltd. and Marubeni Benelux. On October 10, 1979, GALLEON, through
Cuenca, and DBP executed a Deed of Undertaking 3 whereby DBP guaranteed the prompt and punctual
payment of GALLEON's borrowings from the Japanese lenders. To secure DBP's guarantee under the
Deed of Undertaking, GALLEON promised, among others, to secure a first mortgage on the five new
vessels and on the second-hand vessels. Thus, GALLEON executed on January 25, 1982 a mortgage
contract over five of its vessels namely, M/V "Galleon Honor," M/V "Galleon Integrity," M/V "Galleon
Dignity," M/V "Galleon Pride," and M/V "Galleon Trust" in favor of DBP. 4

Meanwhile, on January 21, 1981, President Ferdinand Marcos issued Letter of Instruction (LOI) No.
1155, directing NDC to acquire the entire shareholdings of GALLEON for the amount originally
contributed by its shareholders payable in five (5) years without interest cost to the government. In the
same LOI, DBP was to advance to GALLEON within three years from its effectivity the principal amount
and the interest thereon of GALLEON's maturing obligations. ESTAIH

On August 10, 1981, GALLEON, represented by its president, Cuenca, and NDC, represented by Minister
of Trade Roberto Ongpin, forged a Memorandum of Agreement, 5 whereby NDC and GALLEON agreed
to execute a share purchase agreement within sixty days for the transfer of GALLEON's shareholdings.
Thereafter, NDC assumed the management and operations of GALLEON although Cuenca remained
president until May 9, 1982. 6 Using its own funds, NDC paid Asian Hardwood on January 15, 1982 the
amount of US$1,000,000.00 as partial settlement of GALLEON's obligations. 7

On February 10, 1982, LOI No. 1195 was issued directing the foreclosure of the mortgage on the five
vessels. For failure of GALLEON to pay its debt despite repeated demands from DBP, the vessels were
extrajudicially foreclosed on various dates and acquired by DBP for the total amount of
P539,000,000.00. DBP subsequently sold the vessels to NDC for the same amount. 8

On April 22, 1982, the Board of Directors of GALLEON amended the Articles of Incorporation changing
the corporate name from Galleon Shipping Corporation to National Galleon Shipping Corporation and
increasing the number of directors from seven to nine. 9

Asian Hardwood assigned its rights over the outstanding obligation of GALLEON of US$2,315,747.32 to
World Universal Trading and Investment Company, S.A. (World Universal), embodied in a Deed of
Assignment executed on April 29, 1989. 10 World Universal, in turn, assigned the credit to petitioner
POLIAND sometime in July 1989. 11

On March 24, 1988, then President Aquino issued Administrative Order No. 64, directing NDC and
Philippine Export and Foreign Loan Guarantee Corporation (now Trade and Investment Development
Corporation of the Philippines) to transfer some of their assets to the National Government, through the
Asset Privatization Trust (APT) for disposition. Among those transferred to the APT were the five
GALLEON vessels sold at the foreclosure proceedings. IaAScD
On September 24, 1991, POLIAND made written demands on GALLEON, NDC, and DBP for the
satisfaction of the outstanding balance in the amount of US$2,315,747.32. 12 For failure to heed the
demand, POLIAND instituted a collection suit against NDC, DBP and GALLEON filed on October 10, 1991
with the Regional Trial Court, Branch 61, Makati City. POLIAND claimed that under LOI No. 1155 and the
Memorandum of Agreement between GALLEON and NDC, defendants GALLEON, NDC, and DBP were
solidarily liable to POLIAND as assignee of the rights of the credit advances/loan accommodations to
GALLEON. POLIAND also claimed that it had a preferred maritime lien over the proceeds of the
extrajudicial foreclosure sale of GALLEON's vessels mortgaged by NDC to DBP. The complaint prayed for
judgment ordering NDC, DBP, and GALLEON to pay POLIAND jointly and severally the balance of the
credit advances/loan accommodations in the amount of US$2,315,747.32 and attorney's fees of
P100,000.00 plus 20% of the amount recovered. By way of an alternative cause of action, POLIAND
sought reimbursement from NDC and DBP for the preferred maritime lien of US$1,193,298.56. 13

In its Answer with Compulsory Counterclaim and Cross-claim, DBP denied being a party to any of the
alleged loan transactions. Accordingly, DBP argued that POLIAND's complaint stated no cause of action
against DBP or was barred by the Statute of Frauds because DBP did not sign any memorandum to act as
guarantor for the alleged credit advances/loan accommodations in favor of POLIAND. DBP also denied
any liability under LOI No. 1155, which it described as immoral and unconstitutional, since it was
rescinded by LOI No. 1195. By way of its Affirmative Allegations and Defenses, DBP countered that it was
unaware of the maritime lien on the five vessels mortgaged in its favor and that as far as GALLEON's
foreign borrowings are concerned, DBP agreed to act as guarantor thereof only under the conditions laid
down under the Deed of Undertaking. DBP prayed for the award of actual, moral and exemplary
damages and attorney's fees against POLIAND as compulsory counterclaim. In the event that it be
adjudged liable for the payment of the loan accommodations and the maritime liens, DBP prayed that
its co-defendant GALLEON be ordered to indemnify DBP for the full amount. 14

For its part, NDC denied any participation in the execution of the loan accommodations/credit advances
and acquisition of ownership of GALLEON, asserting that it acted only as manager of GALLEON. NDC
specifically denied having agreed to the assumption of GALLEON's liabilities because no purchase and
sale agreement was executed and the delivery of the required shares of stock of GALLEON did not take
place. 15

Upon motion by POLIAND, the trial court dropped GALLEON as a defendant, despite vigorous
oppositions from NDC and DBP. At the pre-trial conference on April 29, 1993, the trial court issued an
Order limiting the issues to the following: (1) whether or not GALLEON has an outstanding obligation in
the amount of US$2,315,747.32; (2) whether or not NDC and DBP may be held solidarily liable therefor;
and (3) whether or not there exists a preferred maritime lien of P1,000,000.00 in favor of POLIAND. 16

After trial on the merits, the court a quo rendered a decision on August 9, 1996 in favor of POLIAND.
Finding that GALLEON's loan advances/credit accommodations were duly established by the evidence on
record, the trial court concluded that under LOI No. 1155, DBP and NDC are liable for those obligations.
The trial court also found NDC liable for GALLEON's obligations based on the Memorandum of
Agreement dated August 1981 executed between GALLEON and NDC, where it was provided that NDC
shall prioritize repayments of GALLEON's valid and subsisting liabilities subject of a meritorious lawsuit
or which have been arranged and guaranteed by Cuenca. The trial court was of the opinion that despite
the subsequent issuance of LOI No. 1195, NDC and DBP's obligation under LOI No. 1155 subsisted
because "vested rights of the parties have arisen therefrom." Accordingly, the trial court interpreted LOI
No. 1195's directive to "limit and protect" to mean that "DBP and NDC should not assume or incur
additional exposure with respect to GALLEON." 17

The trial court dismissed NDC's argument that the Memorandum of Agreement was merely a
preliminary agreement, noting that under paragraph nine thereof, the only condition for the payment of
GALLEON's subsisting loans by NDC was the determination by the latter that those obligations were
incurred in the ordinary course of GALLEON's business. The trial court did not regard the non-execution
of the stock purchase agreement as fatal to POLIAND's cause since its non-happening was solely
attributable to NDC. The trial court also ruled that POLIAND had preference to the maritime lien over
the proceeds of the extrajudicial foreclosure sale of GALLEON's vessels since the loan advances/credit
accommodations utilized for the payment of expenses on the vessels were obtained prior to the
constitution of the mortgage in favor of DBP. IDCScA

In sum, NDC and DBP were ordered to pay POLIAND as follows:

WHEREFORE, premises above considered, judgment is hereby rendered for plaintiff as against
defendants DBP and NDC, who are hereby ORDERED as follows:

1. To jointly and severally PAY plaintiff POLIAND the amount of TWO MILLION THREE HUNDRED
FIFTEEN THOUSAND SEVEN HUNDRED FORTY SEVEN AND 21/100 [sic] United States Dollars
(US$2,315,747.32) computed at the official exchange rate at the time of payment, plus interest at the
rate of 12% per annum from 25 September 1991 until fully paid;

2. To PAY the amount of ONE MILLION (P1,000,000.) Pesos, Philippine Currency, for and as
attorney's fees; and

3. To PAY the costs of the proceedings.

SO ORDERED. 18

Both NDC and DBP appealed the trial court's decision.

The Court of Appeals rendered a modified judgment, absolving DBP of any liability in view of POLIAND's
failure to clearly prove its action against DBP. The appellate court also discharged NDC of any liability
arising from the credit advances/loan obligations obtained by GALLEON on the ground that NDC did not
acquire ownership of GALLEON but merely assumed control over its management and operations.
However, NDC was held liable to POLIAND for the payment of the preferred maritime lien based on LOI
No. 1195 which directed NDC to "discharge such maritime liens as may be necessary to allow the
foreclosed vessels to engage on the international shipping business," as well as attorney's fees and costs
of suit. The dispositive portion of the Decision reads:
WHEREFORE, the assailed decision is MODIFIED, in accordance with the foregoing findings, as follows:

The case against defendant-appellant DBP is hereby DISMISSED.

Defendant-appellant NDC is hereby ordered to pay plaintiff-appellee POLIAND the amount of

US$1,920,298.56 plus legal interest effective September 12, 1984. HSIaAT

The award of attorney's fees and cost of suit is addressed only against NDC.

Costs against defendant-appellant NDC.

SO ORDERED. 19

Not satisfied with the modified judgment, both POLIAND and NDC elevated it to this Court via two
separate petitions for review on certiorari. In G.R. No. 143866 filed on August 21, 2000, petitioner
POLIAND raises the following arguments:

RESPONDENT COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERRORS IN ITS QUESTIONED
DECISION DATED 29 JUNE 2000 AND DECIDED QUESTIONS CONTRARY TO LAW AND THE APPLICABLE
DECISIONS OF THE HONORABLE COURT WHEN IT MODIFIED THE DECISION DATED 09 AUGUST 1996
RENDERED BY THE REGIONAL TRIAL COURT (BRANCH 61) CONSIDERING THAT:

A.

CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS, RESPONDENT NDC NOT ONLY TOOK
OVER TOTALLY THE MANAGEMENT AND CONTROL OF GALLEON BUT ALSO ASSUMED OWNERSHIP OF
GALLEON PURSUANT TO LOI NO. 1155 AND THE MEMORANDUM OF AGREEMENT DATED 10 AUGUST
1981; THUS, RESPONDENT NDC'S ACQUISITION OF FULL OWNERSHIP AND CONTROL OF GALLEON
CARRIED WITH IT THE ASSUMPTION OF THE LATTER'S LIABILITIES TO THIRD PARTIES SUCH AS ASIAN
HARDWOOD, PETITIONER POLIAND'S PREDECESSOR-IN-INTEREST. cSCTEH

B.

RESPONDENT COURT OF APPEALS, IN VIOLATION OF THE CONSTITUTION AND THE RULES OF COURT,
DISMISSED THE CASE AGAINST RESPONDENT DBP WITHOUT STATING CLEARLY AND DISTINCTLY THE
REASONS FOR SUCH A DISMISSAL.

C.

CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS, PETITIONER POLIAND WAS ABLE TO
ESTABLISH THAT RESPONDENT DBP IS SOLIDARILY LIABLE, TOGETHER WITH RESPONDENT NDC, WITH
RESPECT TO THE NET TOTAL AMOUNT OWING TO PETITIONER POLIAND.

D.
RESPONDENT COURT OF APPEALS GRAVELY ERRED ALSO IN NOT FINDING THAT RESPONDENT DBP IS
JOINTLY AND SOLIDARILY LIABLE WITH RESPONDENT NDC FOR THE PAYMENT OF MARITIME LIENS PLUS
INTEREST PURSUANT TO SECTION 17 OF PRESIDENTIAL DECREE 1521. 20

On August 25, 2000, NDC filed its petition, docketed as G.R. No. 143877, imputing the following errors to
the Court of Appeals:

I.

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER NDC IS LIABLE TO PAY GALLEON'S
OUTSTANDING OBLIGATION TO RESPONDENT POLIAND IN THE AMOUNT OF US$ 1,920,298.56, TO
SATISFY THE PREFERRED MARITIME LIENS OVER THE PROCEEDS OF THE FORECLOSURE SALE OF THE FIVE
GALLEON VESSELS. caIETS

(A) PRESIDENTIAL DECREE NO. 1521 OTHERWISE KNOWN AS THE 'SHIP MORTGAGE DECREE OF
1978 IS NOT APPLICABLE IN THE CASE AT BAR.

(B) PETITIONER NDC DOES NOT HOLD THE PROCEEDS OF THE FORECLOSURE SALE OF THE FIVE (5)
GALLEON VESSELS.

(C) THE FORECLOSURE SALE OF THE FIVE (5) GALLEON VESSELS EXTINGUISHES ALL CLAIMS AGAINST
THE VESSELS.

II.

THE COURT OF APPEALS ERRED IN AWARDING ATTORNEY'S FEES TO RESPONDENT POLIAND. 21

The two petitions were consolidated considering that both petitions assail the same Court of Appeals'
Decision, although on different fronts. In G.R. No. 143866, POLIAND questions the appellate court's
finding that neither NDC nor DBP can be held liable for the loan accommodations to GALLEON. In G.R.
No. 143877, NDC asserts that it is not liable to POLIAND for the preferred maritime lien.

ISSUES

The bone of contention revolves around two main issues, namely: (1) Whether NDC or DBP or both are
liable to POLIAND on the loan accommodations and credit advances incurred by GALLEON, and (2)
Whether POLIAND has a maritime lien enforceable against NDC or DBP or both.

RULING of the COURT

I. Liability on loan accommodations

and credit advances incurred by GALLEON

The Court of Appeals reversed the trial court's conclusion that NDC and DBP are both liable to POLIAND
for GALLEON's debts on the basis of LOI No. 1155 and the Memorandum of Agreement. It ratiocinated
thus:
With respect to appellant NDC, resolution of the matters raised in its assignment of errors hinges on
whether or not it acquired the shareholdings of GALLEON as directed by LOI 1155; and if in the negative,
whether or not it is liable to pay GALLEON's outstanding obligation. HAICET

The Court answers the issue in the negative. The MOA executed by GALLEON and NDC following the
issuance of LOI 1155 called for the execution of a "formal share purchase agreement and the transfer of
all the shareholdings of seller to Buyer." Since no such execution and consequent transfer of
shareholdings took place, NDC did not acquire ownership of GALLEON. It merely assumed "actual
control over the management and operations" of GALLEON in the exercise of which it, on January 15,
1982, after being satisfied of the existence of GALLEON's obligation to ASIAN HARDWOOD, partially paid
the latter One Million ($1,000,000.00) US dollars. 22

xxx xxx xxx

With respect to defendant-appellant DBP, POLIAND failed to clearly prove its cause of action against it.
This leaves it unnecessary to dwell on DBP's other assigned errors, including that bearing on its claim for
damages and attorney's fees which does not persuade. 23

POLIAND's cause of action against NDC is premised on the theory that when NDC acquired all the
shareholdings of GALLEON, the former also assumed the latter's liabilities, including the loan
advances/credit accommodations obtained by GALLEON from POLIAND's predecessors-in-interest. In
G.R. No. 143866, POLIAND argues that NDC acquired ownership of GALLEON pursuant to paragraphs 1
and 2 of LOI No. 1155, which was implemented through the execution of the Memorandum of
Agreement. It believes that no conditions were required prior to the assumption by NDC of GALLEON's
ownership and subsisting loans. Even assuming that conditions were set, POLIAND opines that the
conditions were deemed fulfilled pursuant to Article 1186 of the Civil Code because of NDC's apparent
intent to prevent the execution of the share purchase agreement. 24

On the other hand, NDC asserts that it could not have acquired GALLEON's equity and, consequently, its
liabilities because LOI No. 1155 had been rescinded by LOI No. 1195, and therefore, became inoperative
and non-existent. Moreover, NDC, relying on the pronouncements in Philippine Association of Service
Exporters, Inc. et al. v. Ruben D. Torres 25 and Parong, et al. v. Minister Enrile, 26 is of the opinion that
LOI No. 1155 does not have the force and effect of law and cannot be a valid source of obligation. 27
NDC denies POLIAND's contention that it deliberately prevented the execution of the share purchase
agreement considering that Cuenca remained GALLEON's president seven months after the signing of
the Memorandum of Agreement. 28 NDC contends that the Memorandum of Agreement was a mere
preliminary agreement between Cuenca and Ongpin for the intended purchase of GALLEON's equity,
prescribing the manner, terms and conditions of said purchase. 29

NDC, not liable under LOI No. 1155

As a general rule, letters of instructions are simply directives of the President of the Philippines, issued
in the exercise of his administrative power of control, to heads of departments and/or officers under the
executive branch of the government for observance by the officials and/or employees thereof. 30 Being
administrative in nature, they do not have the force and effect of a law and, thus, cannot be a valid
source of obligation. However, during the period when then President Marcos exercised extraordinary
legislative powers, he issued certain decrees, orders and letters of instruction which the Court has
declared as having the force and effect of a statute. As pointed out by the Court in Legaspi v. Minister of
Finance, 31 paramount considerations compelled the grant of extraordinary legislative power to the
President at that time when the nation was beset with threats to public order and the purpose for which
the authority was granted was specific to meet the exigencies of that period, thus:

True, without loss of time, President Marcos made it clear that there was no military take-over of the
government, and that much less was there being established a revolutionary government, even as he
declared that said martial law was of a double-barrelled type, unfamiliar to traditional constitutionalists
and political scientists for two basic and transcendental objectives were intended by it: (1) the
quelling of nation-wide subversive activities characteristic not only of a rebellion but of a state of war
fanned by a foreign power of a different ideology from ours, and not excluding the stopping effectively
of a brewing, if not a strong separatist movement in Mindanao, and (2) the establishment of a New
Society by the institution of disciplinary measures designed to eradicate the deep-rooted causes of the
rebellion and elevate the standards of living, education and culture of our people, and most of all the
social amelioration of the poor and underprivileged in the farms and in the barrios, to the end that
hopefully insurgency may not rear its head in this country again. 32

Thus, before a letter of instruction is declared as having the force and effect of a statute, a
determination of whether or not it was issued in response to the objectives stated in Legaspi is
necessary. Parong, et al. v. Minister Enrile 33 differentiated between LOIs in the nature of mere
administrative issuances and those forming part of the law of the land. The following conditions must be
established before a letter of instruction may be considered a law:

To form part of the law of the land, the decree, order or LOI must be issued by the President in the
exercise of his extraordinary power of legislation as contemplated in Section 6 of the 1976 amendments
to the Constitution, whenever in his judgment, there exists a grave emergency or threat or imminence
thereof, or whenever the interim Batasan Pambansa or the regular National Assembly fails or is unable
to act adequately on any matter for any reason that in his judgment requires immediate action. 34

Only when issued under any of the two circumstances will a decree, order, or letter be qualified as
having the force and effect of law. The decree or instruction should have been issued either when there
existed a grave emergency or threat or imminence or when the Legislature failed or was unable to act
adequately on the matter. The qualification that there exists a grave emergency or threat or imminence
thereof must be interpreted to refer to the prevailing peace and order conditions because the particular
purpose the President was authorized to assume legislative powers was to address the deteriorating
peace and order situation during the martial law period. EcSCHD

There is no doubt that LOI No. 1155 was issued on July 21, 1981 when then President Marcos was
vested with extraordinary legislative powers. LOI No. 1155 was specifically directed to DBP, NDC and the
Maritime Industry Authority to undertake the following tasks:
LETTER OF INSTRUCTIONS NO. 1155

DEVELOPMENT BANK OF THE PHILIPPINES

NATIONAL DEVELOPMENT COMPANY

MARITIME INDUSTRY AUTHORITY

DIRECTING A REHABILITATION PLAN FOR GALLEON SHIPPING CORPORATION

xxx xxx xxx

1. NDC shall acquire 100% of the shareholdings of Galleon Shipping Corporation from its present
owners for the amount of P46.7 million which is the amount originally contributed by the present
shareholders, payable after five years with no interest cost.

2. NDC to immediately infuse P30 million into Galleon Shipping Corporation in lieu of is previously
approved subscription to Philippine National Lines. In addition, NDC is to provide additional equity to
Galleon as may be required.

3. DBP to advance for a period of three years from date hereof both the principal and the interest
on Galleon's obligations falling due and to convert such advances into 12% preferred shares in Galleon
Shipping Corporation.

4. DBP and NDC to negotiate a restructuring of loans extended by foreign creditors of Galleon.

5. MARINA to provide assistance to Galleon by mandating a rational liner shipping schedule

considering existing freight volumes and to immediately negotiate a bilateral agreement with the United
States in accordance with UNCTAD resolutions. IHTASa

xxx xxx xxx

Although LOI No. 1155 was undoubtedly issued at the time when the President exercised legislative
powers granted under Amendment No. 6 of the 1973 Constitution, the language and purpose of LOI No.
1155 precludes this Court from declaring that said LOI had the force and effect of law in the absence of
any of the conditions set out in Parong. The subject matter of LOI No. 1155 is not connected, directly or
remotely, to a grave emergency or threat to the peace and order situation of the nation in particular or
to the public interest in general. Nothing in the language of LOI No. 1155 suggests that it was issued to
address the security of the nation. Obviously, LOI No. 1155 was in the nature of a mere administrative
issuance directed to NDC, DBP and MARINA to undertake a policy measure, that is, to rehabilitate a
private corporation.

NDC, not liable under the Corporation Code

The Court cannot accept POLIAND's theory that with the effectivity of LOI No. 1155, NDC ipso facto
acquired the interests in GALLEON without disregarding applicable statutory requirements governing
the acquisition of a corporation. Ordinarily, in the merger of two or more existing corporations, one of
the combining corporations survives and continues the combined business, while the rest are dissolved
and all their rights, properties and liabilities are acquired by the surviving corporation. 35 The merger,
however, does not become effective upon the mere agreement of the constituent corporations. 36

As specifically provided under Section 79 37 of said Code, the merger shall only be effective upon the
issuance of a certificate of merger by the Securities and Exchange Commission (SEC), subject to its prior
determination that the merger is not inconsistent with the Code or existing laws. Where a party to the
merger is a special corporation governed by its own charter, the Code particularly mandates that a
favorable recommendation of the appropriate government agency should first be obtained. The
issuance of the certificate of merger is crucial because not only does it bear out SEC's approval but also
marks the moment whereupon the consequences of a merger take place. By operation of law, upon the
effectivity of the merger, the absorbed corporation ceases to exist but its rights, and properties as well
as liabilities shall be taken and deemed transferred to and vested in the surviving corporation. 38

The records do not show SEC approval of the merger. POLIAND cannot assert that no conditions were
required prior to the assumption by NDC of ownership of GALLEON and its subsisting loans. Compliance
with the statutory requirements is a condition precedent to the effective transfer of the shareholdings in
GALLEON to NDC. In directing NDC to acquire the shareholdings in GALLEON, the President could not
have intended that the parties disregard the requirements of law. In the absence of SEC approval, there
was no effective transfer of the shareholdings in GALLEON to NDC. Hence, NDC did not acquire the
rights or interests of GALLEON, including its liabilities. CHcETA

DBP, not liable under LOI No. 1155

POLIAND argues that paragraph 3 of LOI No. 1155 unequivocally obliged DBP to advance the obligations
of GALLEON. 39 DBP argues that POLIAND has no cause of action against it under LOI No. 1155 which is
void and unconstitutional. 40

The Court affirms the appellate court's ruling that POLIAND does not have any cause of action against
DBP under LOI No. 1155. Being a mere administrative issuance, LOI No. 1155 cannot be a valid source of
obligation because it did not create any privity of contract between DBP and POLIAND or its
predecessors-in-interest. At best, the directive in LOI No. 1155 was in the nature of a grant of authority
by the President on DBP to enter into certain transactions for the satisfaction of GALLEON's obligations.
There is, however, nothing from the records of the case to indicate that DBP had acted as surety or
guarantor, or had otherwise accommodated GALLEON's obligations to POLIAND or its predecessors-in-
interest.

II. Liability on maritime lien

On the second issue of whether or not NDC is liable to POLIAND for the payment of maritime lien, the
appellate court ruled in the affirmative, to wit:

Non-acquisition of ownership of GALLEON notwithstanding, NDC is liable to pay ASIAN HARDWOOD's

successor-in-interest POLIAND the equivalent of US$1,930,298.56 representing the proceeds of the loan
from Asian Hardwood which were spent by GALLEON for ship modification and salaries of crew, to
satisfy the preferred maritime liens over the proceeds of the foreclosure sale of the 5 vessels. 41

POLIAND contends that NDC can no longer raise the issue on the latter's liability for the payment of the
maritime lien considering that upon appeal to the Court of Appeals, NDC did not assign it as an error. 42
Generally, an appellate court may only pass upon errors assigned. However, this rule is not without
exceptions. In the following instances, the Court ruled that an appellate court is accorded a broad
discretionary power to waive the lack of assignment of errors and consider errors not assigned:

(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject
matter; aDcTHE

(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within
contemplation of law;

(c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a
just decision and complete resolution of the case or to serve the interests of a justice or to avoid
dispensing piecemeal justice;

(d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters
of record having some bearing on the issue submitted which the parties failed to raise or which the
lower court ignored;

(e) Matters not assigned as errors on appeal but closely related to an error assigned;

(f) Matters not assigned as errors on appeal but upon which the determination of a question
properly assigned, is dependent. 43

It is noteworthy that the question of NDC and DBP's liability on the maritime lien had been raised by
POLIAND as an alternative cause of action against NDC and DBP and was passed upon by the trial court.
The Court of Appeals, however, reversed the trial court's finding that NDC and DBP are liable to
POLIAND for the payment of the credit advances and loan accommodations and instead found NDC to
be solely liable on the preferred maritime lien although NDC did not assign it as an error.

The records, however, reveal that the issue on the liability on the preferred maritime lien had been
properly raised and argued upon before the Court of Appeals not by NDC but by DBP who was also
adjudged liable thereon by the trial court. DBP's appellant's brief 44 pointed out POLIAND's failure to
present convincing evidence to prove its alternative cause of action, which POLIAND disputed in its
appellee's brief. 45 The issue on the maritime lien is a matter of record having been adequately
ventilated before and passed upon by the trial court and the appellate court. Thus, by way of exception,
NDC is not precluded from again raising the issue before this Court even if it did not specifically assign
the matter as an error before the Court of Appeals. Besides, this Court is clothed with ample authority to
review matters, even if they are not assigned as errors in the appeal if it finds that their consideration is
necessary in arriving at a just decision of the case. 46
Articles 578 and 580 of the Code of Commerce, not applicable

NDC cites Articles 578 47 and 580 48 of the Code of Commerce to bolster its argument that the
foreclosure of the vessels extinguished all claims against the vessels including POLIAND's claim. 49
Article 578 of the Code of Commerce is not relevant to the facts of the instant case because it governs
the sale of vessels in a foreign port. Said provision outlines the formal and registration requirements in
order that a sale of a vessel on voyage or in a foreign port becomes effective as against third persons.
On the other hand, the resolution of the instant case depends on the determination as to which creditor
is entitled to the proceeds of the foreclosure sale of the vessels. Clearly, Article 578 of the Code of
Commerce is inapplicable. CAScIH

Article 580, while providing for the order of payment of creditors in the event of sale of a vessel, had
been repealed by the pertinent provisions of Presidential Decree (P.D.) No. 1521, otherwise known as
the Ship Mortgage Decree of 1978. In particular, Article 580 provides that in case of the judicial sale of a
vessel for the payment of creditors, the debts shall be satisfied in the order specified therein. On the
other hand, Section 17 of P.D. No. 1521 50 also provides that in the judicial or extrajudicial sale of a
vessel for the enforcement of a preferred mortgage lien constituted in accordance with Section 2 of P.D.
No. 1521, such preferred mortgage lien shall have priority over all pre-existing claims against the vessel,
save for those claims enumerated under Section 17, which have preference over the preferred
mortgage lien in the order stated therein. Since P.D. No. 1521 is a subsequent legislation and since said
law in Section 17 thereof confers on the preferred mortgage lien on the vessel superiority over all other
claims, thereby engendering an irreconcilable conflict with the order of preference provided under
Article 580 of the Code of Commerce, it follows that the Code of Commerce provision is deemed
repealed by the provision of P.D. No. 1521, as the posterior law. 51

P.D. No. 1521 is applicable, not the

Civil Code provisions on

concurrence/preference of

credits

Whether or not the order of preference under Section 17, P.D. No. 1521 may be properly applied in the
instant case depends on the classification of the mortgage on the GALLEON vessels, that is, if it falls
within the ambit of Section 2, P.D. No. 1521, defining how a preferred mortgage is constituted.

NDC and DBP both argue that POLIAND's claim cannot prevail over DBP's mortgage credit over the
foreclosed vessels because the mortgage executed in favor of DBP pursuant to the October 10, 1979
Deed of Undertaking signed by GALLEON and DBP was an ordinary ship mortgage and not a preferred
one, that is, it was not given in connection with the construction, acquisition, purchase or initial
operation of the vessels, but for the purpose of guaranteeing GALLEON's foreign borrowings. 52

Section 2 of P.D. No. 1521 recognizes the constitution of a mortgage on a vessel, to wit:
SECTION 2. Who may Constitute a Ship Mortgage. Any citizen of the Philippines, or any association or
corporation organized under the laws of the Philippines, at least sixty per cent of the capital of which is
owned by citizens of the Philippines may, for the purpose of financing the construction, acquisition,
purchase of vessels or initial operation of vessels, freely constitute a mortgage or any other lien or
encumbrance on his or its vessels and its equipment with any bank or other financial institutions,
domestic or foreign. DTIcSH

If the mortgage on the vessel is constituted for the purpose stated under Section 2, the mortgage
obtains a preferred status provided the formal requisites enumerated under Section 4 53 are complied
with. Upon enforcement of the preferred mortgage and eventual foreclosure of the vessel, the proceeds
of the sale shall be first applied to the claim of the mortgage creditor unless there are superior or
preferential liens, as enumerated under Section 17, namely:

SECTION 17. Preferred Maritime Lien, Priorities, Other Liens. (a) Upon the sale of any mortgaged
vessel in any extra-judicial sale or by order of a district court of the Philippines in any suit in rem in
admiralty for the enforcement of a preferred mortgage lien thereon, all pre-existing claims in the vessel,
including any possessory common-law lien of which a lienor is deprived under the provisions of Section
16 of this Decree, shall be held terminated and shall thereafter attach in like amount and in accordance
with the priorities established herein to the proceeds of the sale. The preferred mortgage lien shall have
priority over all claims against the vessel, except the following claims in the order stated: (1) expenses
and fees allowed and costs taxed by the court and taxes due to the Government; (2) crew's wages; (3)
general average; (4) salvage including contract salvage; (5) maritime liens arising prior in time to the
recording of the preferred mortgage; (6) damages arising out of tort; and (7) preferred mortgage
registered prior in time.

(b) If the proceeds of the sale should not be sufficient to pay all creditors included in one number or
grade, the residue shall be divided among them pro rata. All credits not paid, whether fully or partially
shall subsist as ordinary credits enforceable by personal action against the debtor. The record of judicial
sale or sale by public auction shall be recorded in the Record of Transfers and Encumbrances of Vessels
in the port of documentation. (Emphasis supplied.) cHEATI

There is no question that the mortgage executed in favor of DBP is covered by P.D. No. 1521. Contrary
to NDC's assertion, the mortgage constituted on GALLEON's vessels in favor of DBP may appropriately
be characterized as a preferred mortgage under Section 2, P.D. No. 1521 because GALLEON constituted
the same for the purpose of financing the construction, acquisition, purchase of vessels or initial
operation of vessels. While it is correct that GALLEON executed the mortgage in consideration of DBP's
guarantee of the prompt payment of GALLEON's obligations to the Japanese lenders, DBP's undertaking
to pay the Japanese banks was a condition sine qua non to the acquisition of funds for the purchase of
the GALLEON vessels. Without DBP's guarantee, the Japanese lenders would not have provided the
funds utilized in the purchase of the GALLEON vessels. The mortgage in favor of DBP was therefore
constituted to facilitate the acquisition of funds necessary for the purchase of the vessels.
NDC adds that being an ordinary ship mortgage, the Civil Code provisions on concurrence and
preference of credits and not P.D. No. 1521 should govern. NDC contends that under Article 2246, in
relation to Article 2241 of the Civil Code, the credits guaranteed by a chattel mortgage upon the thing
mortgaged shall enjoy preference (with respect to the thing mortgaged), to the exclusion of all others to
the extent of the value of the personal property to which the preference exists. 54 Following NDC's
theory, DBP's mortgage credit, which is fourth in the order of preference under Article 2241, is superior
to POLIAND's claim, which enjoys no preference.

NDC's argument does not persuade the Court.

The provision of P.D. No. 1521 on the order of preference in the satisfaction of the claims against the
vessel is the more applicable statute to the instant case compared to the Civil Code provisions on the
concurrence and preference of credit. General legislation must give way to special legislation on the
same subject, and generally be so interpreted as to embrace only cases in which the special provisions
are not applicable. 55

POLIAND's alternative cause of action for the payment of maritime liens is based on Sections 17 and 21
of P.D. No. 1521. POLIAND also contends that by virtue of the directive in LOI No. 1195 on NDC to
discharge maritime liens to allow the vessels to engage in international business, NDC is liable therefor.
56

POLIAND's maritime lien is superior

to DBP's mortgage lien

Before POLIAND's claim may be classified as superior to the mortgage constituted on the vessel, it must
be shown to be one of the enumerated claims which Section 17, P.D. No. 1521 declares as having
preferential status in the event of the sale of the vessel. One of such claims enumerated under Section
17, P.D. No. 1521 which is considered to be superior to the preferred mortgage lien is a maritime lien
arising prior in time to the recording of the preferred mortgage. Such maritime lien is described under
Section 21, P.D. No. 1521, which reads:

SECTION 21. Maritime Lien for Necessaries; persons entitled to such lien. Any person furnishing
repairs, supplies, towage, use of dry dock or marine railway, or other necessaries to any vessel, whether
foreign or domestic, upon the order of the owner of such vessel, or of a person authorized by the
owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall be
necessary to allege or prove that credit was given to the vessel. TCaSAH

Under the aforequoted provision, the expense must be incurred upon the order of the owner of the
vessel or its authorized person and prior to the recording of the ship mortgage. Under the law, it must
be established that the credit was extended to the vessel itself. 57

The trial court found that GALLEON's advances obtained from Asian Hardwood were used to cover for
the payment of bunker oil/fuel, unused stores and oil, bonded stores, provisions, and repair and docking
of the GALLEON vessels. 58 These expenses clearly fall under Section 21, P.D. No. 1521.
The trial court also found that the advances from Asian Hardwood were spent for ship modification cost
and the crew's salary and wages. DBP contends that a ship modification cost is omitted under Section
17, P.D. No. 1521, hence, it does not have a status superior to DBP's preferred mortgage lien.

As stated in Section 21, P.D. No. 1521, a maritime lien may consist in "other necessaries spent for the
vessel." The ship modification cost may properly be classified under this broad category because it was a
necessary expenses for the vessel's navigation. As long as an expense on the vessel is indispensable to
the maintenance and navigation of the vessel, it may properly be treated as a maritime lien for
necessaries under Section 21, P.D. No. 1521.

With respect to the claim for salary and wages of the crew, there is no doubt that it is also one of the
enumerated claims under Section 17, P.D. No. 1521, second only to judicial costs and taxes due the
government in preference and, thus, having a status superior to DBP's mortgage lien.

All told, the determination of the existence and the amount of POLIAND's claim for maritime lien is a
finding of fact which is within the province of the courts below. Findings of fact of lower courts are
deemed conclusive and binding upon the Supreme Court except when the findings are grounded on
speculation, surmises or conjectures; when the inference made is manifestly mistaken, absurd or
impossible; when there is grave abuse of discretion in the appreciation of facts; when the factual
findings of the trial and appellate courts are conflicting; when the Court of Appeals, in making its
findings, has gone beyond the issues of the case and such findings are contrary to the admissions of
both appellant and appellee; when the judgment of the appellate court is premised on a
misapprehension of facts or when it has failed to notice certain relevant facts which, if properly
considered, will justify a different conclusion; when the findings of fact are conclusions without citation
of specific evidence upon which they are based; and when findings of fact of the Court of Appeals are
premised on the absence of evidence but are contradicted by the evidence on record. 59 The Court finds
no sufficient justification to reverse the findings of the trial court and the appellate court in respect to
the existence and amount of maritime lien. TCaAHI

Only NDC is liable on the maritime lien

POLIAND maintains that DBP is also solidarily liable for the payment of the preferred maritime lien over
the proceeds of the foreclosure sale by virtue of Section 17, P.D. No. 1521. It claims that since the lien
was incurred prior to the constitution of the mortgage on January 25, 1982, the preferred maritime lien
attaches to the proceeds of the sale of the vessels and has priority over all claims against the vessels in
accordance with Section 17, P.D. No. 1521. 60

In its defense, DBP reiterates the following arguments: (1) The salary and crew's wages cannot be
claimed by POLIAND or its predecessors-in-interest because none of them is a sailor or mariner; 61 (2)
Even if conceded, POLIAND's preferred maritime lien is unenforceable pursuant to Article 1403 of the
Civil Code; and (3) POLIAND's claim is barred by prescription and laches. 62

The first argument is absurd. Although POLIAND or its predecessors-in-interest are not sailors entitled to
wages, they can still make a claim for the advances spent for the salary and wages of the crew under the
principle of legal subrogation. As explained in Philippine National Bank v. Court of Appeals, 63 a third
person who satisfies the obligation to an original maritime lienor may claim from the debtor because
the third person is subrogated to the rights of the maritime lienor over the vessel. The Court explained
as follows:

From the foregoing, it is clear that the amount used for the repair of the vessel M/V "Asean Liberty" was
advanced by Citibank and was utilized for the purpose of paying off the original maritime lienor, Hong
Kong United Dockyards, Ltd. As a person not interested in the fulfillment of the obligation between PISC
and Hong Kong United Dockyards, Ltd., Citibank was subrogated to the rights of Hong Kong United
Dockyards, Ltd. as a maritime lienor over the vessel, by virtue of Article 1302, par. 2 of the New Civil
Code. By definition, subrogation is the transfer of all the rights of the creditor to a third person, who
substitutes him in all his rights. Considering that Citibank paid off the debt of PISC to Hong Kong United
Dockyards, Ltd. it became the transferee of all the rights of Hong Kong Dockyards, Ltd. as against PISC,
including the maritime lien over the vessel M/V "Asian Liberty." 64

DBP's reliance on the Statute of Frauds is misplaced. Article 1403 (2) of the Civil Code, which
enumerates the contracts covered by the Statute of Frauds, is inapplicable. To begin with, there is no
privity of contract between POLIAND or its predecessors-in-interest, on one hand, and DBP, on the
other. POLIAND hinges its claim on the maritime lien based on LOI No. 1195 and P.D. No. 1521, and not
on any contract or agreement. HTSaEC

Neither can DBP invoke prescription or laches against POLIAND. Under Article 1144 of the Civil Code, an
action upon an obligation created by law must be brought within ten years from the time the right of
action accrues. The right of action arose after January 15, 1982, when NDC partially paid off GALLEON's
obligations to POLIAND's predecessor-in-interest, Asian Hardwood. At that time, the prescriptive period
for the enforcement by action of the balance of GALLEON's outstanding obligations had commenced.
Prescription could not have set in because the prescriptive period was tolled when POLIAND made a
written demand for the satisfaction of the obligation on September 24, 1991, or before the lapse of the
ten-year prescriptive period. Laches also do not lie because there was no unreasonable delay on the part
of POLIAND in asserting its rights. Indeed, it instituted the instant suit seasonably.

All things considered, however, the Court finds that only NDC is liable for the payment of the maritime
lien. A maritime lien is akin to a mortgage lien in that in spite of the transfer of ownership, the lien is not
extinguished. The maritime lien is inseparable from the vessel and until discharged, it follows the vessel.
Hence, the enforcement of a maritime lien is in the nature and character of a proceeding quasi in rem.
65 The expression "action in rem" is, in its narrow application, used only with reference to certain
proceedings in courts of admiralty wherein the property alone is treated as responsible for the claim or
obligation upon which the proceedings are based. 66 Considering that DBP subsequently transferred
ownership of the vessels to NDC, the Court holds the latter liable on the maritime lien. Notwithstanding
the subsequent transfer of the vessels to NDC, the maritime lien subsists.

This is a unique situation where the extrajudicial foreclosure of the GALLEON vessels took place without
the intervention of GALLEON's other creditors including POLIAND's predecessors-in-interest who were
apparently left in the dark about the foreclosure proceedings. At that time, GALLEON was already a
failing corporation having borrowed large sums of money from banks and financial institutions. When
GALLEON defaulted in the payment of its obligations to DBP, the latter foreclosed on its mortgage over
the GALLEON ships. The other creditors, including POLIAND's predecessors-in-interest who apparently
had earlier or superior rights over the foreclosed vessels, could not have participated as they were
unaware and were not made parties to the case. DCSETa

On this note, the Court believes and so holds that the institution of the extrajudicial foreclosure
proceedings was tainted with bad faith. It took place when NDC had already assumed the management
and operations of GALLEON. NDC could not have pleaded ignorance over the existence of a prior or
preferential lien on the vessels subject of foreclosure. As aptly held by the Court of Appeals:

NDC's claim that even if maritime liens existed over the proceeds of the foreclosure sale of the vessels
which it subsequently purchased from DBP, it is not liable as it was a purchaser in good faith fails, given
the fact that in its "actual control over the management and operations" of GALLEON, it was put on
notice of the various obligations of GALLEON including those secured from ASIAN HARDWOOD as in fact
it even paid ASIAN HARDWOOD US$1,000,000.00 in partial settlement of GALLEON's obligations, before
it (NDC) mortgaged the 5 vessels to DBP on January 25, 1982.

Parenthetically, LOI 1195 directed NDC to "discharge such maritime liens as may be necessary to allow
the foreclosed vessels to engage on the international shipping business."

In fine, it is with respect to POLIAND's claim for payment of US$1,930,298.56 representing part of the
proceeds of GALLEON's loan which was spent by GALLEON "for ship modification and salaries of crew"
that NDC is liable. 67

Thus, NDC cannot claim that it was a subsequent purchaser in good faith because it had knowledge that
the vessels were subject to various liens. At the very least, to evince good faith, NDC could have inquired
as to the existence of other claims against the vessels apart from DBP's mortgage lien. Considering that
NDC was also in a position to know or discover the financial condition of GALLEON when it took over its
management, the lack of notice to GALLEON's creditors suggests that the extrajudicial foreclosure was
effected to prejudice the rights of GALLEON's other creditors. ACETID

NDC also cannot rely on Administrative Order No. 64, 68 which directed the transfer of the vessels to
the APT, on its hypothesis that such transfer extinguished the lien. APT is a mere conduit through which
the assets acquired by the National Government are provisionally held and managed until their eventual
disposal or privatization. Administrative Order No. 64 did not divest NDC of its ownership over the
GALLEON vessels because APT merely holds the vessels in trust for NDC until the same are disposed.
Even if ownership was transferred to APT, that would not be sufficient to discharge the maritime lien
and deprive POLIAND of its recourse based on the lien. Such denouement would smack of denial of due
process and taking of property without just compensation.

NDC's liability for attorney's fees

The lower court awarded attorney's fees to POLIAND in the amount of P1,000,000.00 on account of the
amount involved in the case and the protracted character of the litigation. 69 The award was affirmed
by the Court of Appeals as against NDC only. 70

This Court finds no reversible error with the award as upheld by the appellate court. Under Article 2208
71 of the Civil Code, attorney's fees may be awarded inter alia when the defendant's act or omission has
compelled the plaintiff to incur expenses to protect his interest or in any other case where the court
deems it just and equitable that attorney's fees and expenses of litigation be recovered.

One final note. There is a discrepancy between the dispositive portion of the Court of Appeals' Decision
and the body thereof with respect to the amount of the maritime lien in favor of POLIAND. The
dispositive portion ordered NDC to pay POLIAND "the amount of US$1,920,298.56" plus interest 72
despite a finding that NDC's liability to POLIAND represents the maritime lien 73 which according to the
complaint 74 is the alternative cause of action of POLIAND in the smaller amount of US$1,193,298.56, as
prayed for by POLIAND in its complaint. AEIcTD

The general rule is that where there is conflict between the dispositive portion or the fallo and the body
of the decision, the fallo controls. This rule rests on the theory that the fallo is the final order while the
opinion in the body is merely a statement ordering nothing. However, where the inevitable conclusion
from the body of the decision is so clear as to show that there was a mistake in the dispositive portion,
the body of the decision will prevail. 75 In the instant case, it is clear from the trial court records and the
Court of Appeals' Rollo that the bigger amount awarded in the dispositive portion of the Court of
Appeals' Decision was a typographical mistake. Considering that the appellate court's Decision merely
affirmed the trial court's finding with respect to the amount of maritime lien, the bigger amount stated
in the dispositive portion of the Court of Appeals' Decision must have been awarded through
inadvertence.

WHEREFORE, both Petitions in G.R. No. 143866 and G.R. No. 143877 are DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 53257 is MODIFIED to the extent that National Development
Company is liable to Poliand Industrial Limited for the amount of One Million One Hundred Ninety Three
Thousand Two Hundred Ninety Eight US Dollars and Fifty-Six US Cents (US$ 1,193,298.56), plus interest
of 12% per annum computed from 25 September 1991 until fully paid. In other respects, said Decision is
AFFIRMED. No pronouncement as to costs. THcEaS

SO ORDERED.

Puno, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.

G.R. No. 10051. March 9, 1916.]

ERLANGER & GALINGER, plaintiffs-appellants, vs. THE SWEDISH EAST ASIATIC CO., (LTD.) ET AL.,
defendants. THE "OELWERKE TEUTONIA" AND NEW ZEALAND INSURANCE CO. (LTD.), appellants.

Gilbert, Haussermann, Cohn & Fisher for plaintiff-appellant.

Rohde & Wright and Lawrence, Ross & Block for defendant-appellants.

SYLLABUS

1. SALVAGE; RIGHT TO COMPENSATION ; THEORY OF REMUNERATION. Generally salvage may

be defined as a service which one person renders to the owner of a ship or goods by his own labor,
preserving the goods or ship which the owner or those entrusted with the care of them have either
abandoned in distress at sea or are unable to protect and secure. It is found on the equity of
remunerating private and secure. It is found on the equity of remunerating private individual services
performed in saving, in whole or in part, a ship or its cargo from impending peril, or of recovering them
after actual loss. It is a compensation for actual services rendered to the property charged with it, and is
allowed for meritorious conduct of the salvor and in consideration of a benefit conferred upon the
person whose property he has saved. Three elements are necessary to a valid salvage claim: (a) a marine
peril; (b) service voluntarily rendered when not required as an existing duty or from special contract; (c)
success, in whole or in part, or that the services rendered contributed to such success.

2. ID.; ID.; ID.; COMPUTATION OF AMOUNT. Compensation as salvage is not viewed by the
admiralty courts merely as pay on the principle of quantum meruit or as a remuneration pro opere et
labore, but as a reward given for perilous services, voluntarily rendered, and as an inducement to
mariners to embark in such dangerous enterprises to save life and property. The amount should be
liberal enough to cover the expenses and to give an extra sum as a reward for the services rendered.
There is no fixed rule for salvage allowance. The allowance rests in the sound discretion of the court or
judge who hears the case, hears the witnesses testify, and is acquainted with the environments in
golden scales, but should be made as a reward for meritorious voluntary services, rendered at a time
when danger of loss is imminent and for the purpose of encouraging others in like services.

3. ID.; ID.; LIEN OF SALVOR. A salvor, in the view of the maritime law, has an interest in the
property; this is called a lien, but it never goes, in the absence of a contract expressly made, upon the
idea of a debt due by the owner to the salvor for services rendered, but upon the principle that the
service creates a property in the thing saved. He is, to all intents and purposes, a joint owner and if the
property is lost he must bear his share like the other joint owners.

4. ID.; "DERELICT" DEFINED. A "derelict" is defined as "a ship or her cargo which is abandoned
and deserted at sea by those who are in charge of it, without any hope of recovering it, or without any
intention of returning to it." If those in charge of the property quitted it or left it with the intention of
finally leaving it, it is derelict, and the change of their intention and an attempt to return will not change
its nature.
5. ID.; ID.; RIGHT OF POSSESSION OF DERELICT. When a vessel is found at sea, deserted, and has
been abandoned by the master and crew without the intention of returning and resuming possession,
she is, in the sense of the law, derelict, abandoned, and the finder who take possession with the
intention of saving her gains a right of possession which he can maintain against the true owner. The
owner does not, indeed, renounce his right of property. This is not presumed to be his intention, nor
does the finder acquire any such right. But the owner does abandon, temporarily, his right of
possession, which is transferred to the finder who becomes bound to preserve the property with good
faith and bring it to a place of safety for the owner's use; and he acquires a right to be paid for his
services a reasonable and proper compensation out of the property itself. He is not bound to part with
the possession until it is paid, or the property is taken into the possession of the law preparatory to the
amount of salvage being legally ascertained.

DECISION

PER CURIAM, p:

The facts in this case are as follows:

First. The steamship Nippon loaded principally with copra and with some other general merchandise
sailed from Manila on May 7, 1913, bound for Singapore. Second. The steamship Nippon went aground
on Scarborough Reef about 4:30 in the afternoon of May 8, 1913. Third. Scarborough Reef is about 120
to 130 miles from the nearest point on the Island of Luzon. Fourth. On May 9, 1913, the chief officer,
Weston, and nine members of the crew left the Nippon and succeeded in reaching the coast of Luzon at
Santa Cruz, Zambales, on the morning of May 12, 1913. Fifth. On May 12, 1913, the chief officer sent a
telegram to Helm, the Director of the Bureau of Navigation at Manila, which was as follows:

"SANTA CRUZ, ZAMBALES,

"May 12, 1913.

"DIRECTOR OF BUREAU OF NAVIGATION, Manila"

"Nippon stranded on Scarborough Reef, wants immediate assistance for saving crew boats gone.

"12.15 p. m. (Sgd.) "WESTON."

Sixth. On the same day (May 12) at 1.30 p. m., the Government of the Philippine Islands ordered the
coast guard cutter Mindoro with life-saving appliances to the scene of the wreck of the Nippon. Seventh.
On the same day (May 12) at 3 p. m. the steamship Manchuria sailed from manila for Hongkong and was
requested to pass by Scarborough Reef. Eighth. The Manchuria arrived at Scarborough Reef some time
before the arrival of the Mindoro on May 13, 1913, and took on board the captain and the remainder of
the crew. Ninth. The Manchuria was still near Scarborough Reef when the Mindoro arrived. The captain
of the Manchuria informed the captain of the Mindoro that the captain and crew of the Nippon were on
board the Manchuria and were proceeding to Hongkong. Tenth. The captain and crew of Nippon, which
assistance was declined. The Mindoro proceeded to the Nippon and removed the balance of the
baggage of the officers and crew, which was found upon the deck. Eleventh. The Mindoro proceeded to
Santa Cruz, Zambales, where the chief officer, Weston, and the nine members of the crew were taken
on board and brought to Manila, arriving there on May 14, 1913. Twelfth. On May 13, 1913, Dixon,
captain of the Manchuria sent the following message:

"S. S. 'MANCHURIA', May 13, 1913.

"All rescued from the Nippon. Stranded on extreme north end of shoal. Vessel stranded May 9. She is
full of water fore and aft and is badly ashore. Ship abandoned. Proceed Hongkong.

(Sgd.) "DIXON"

The captain of the Nippon saw the above message before it was sent. Thirteenth. On May 14, 1913, the
plaintiff applied to the Director of Navigation for a charter of a coast guard cutter, for the purpose of
proceeding to "the stranded and abandoned steamer Nippon." Fourteenth. The coast guard cutter
Mindoro was chartered to the plaintiffs and started on its return to the S. S. Nippon on May 14, 1913.
Fifteenth. The plaintiffs took possession of the Nippon on or about May 17, 1913, and continued in
possession until about the 1st of July, when the last of the cargo was shipped to Manila. Sixteenth. The
Nippon was floated and towed to Olongapo, where temporary repairs were made, and then brought to
Manila. Seventeenth. The Manchuria arrived at Hongkong on the evening of May 14, 1913. When the
captain and crew left the Nippon and went on board the Manchuria, they took with them the
chronometer, the ship's register, the ship's articles, the ship's log, and as much of the crew's baggage as
a small boat could carry. The balance of the baggage of the crew was packed and left on the deck of the
Nippon and was later removed to the Mindoro, without protest on the part of the captain of the
Nippon, as above indicated. Eighteenth. The cargo was brought to the port of Manila and the following
values were fixed:

"Copra (approximately 1317 tons) valued at,

less cost of sale by Collector of Customs P142,657.05

"General cargo-sold at customhouse 5,939.68

"Agar-agar 5,635.00

"Gamphor 1,850.00

"Curios 150.00

"Total 156,231.73"

Nineteenth. The ship was valued at P250,000. The plaintiffs' claim against the ship was settled for
(L)15,000 or about P145,800.
The plaintiffs brought the present action (August 5, 1913; amended complaint, September 23, 1913)
against the insurance companies and underwriters, who represented the cargo salved from the Nippon,
to have the amount of salvage, to which the plaintiffs were entitled, determined.

The case came on for trial before the Honorable A. S. Crossfield. The Oelwerke Teutonia, a corporation,
appeared as claimant of the copra. The New Zealand Insurance Company appeared as insurer and
assignee of 1,000 case of bean oil and two cases of bamboo lacquer work; and The Thames and Mersey
Marine Insurance Company appeared as a reinsurer to the extent of P6,500 on the cargo of copra. The
court found that the plaintiffs were "entitled to recover one-half of the net proceeds from the property
salved and sold (which has nothing to do with the steamship itself), and one-half the value of the
property delivered to the claimants."

Judgment was entered as follows:

"In favor of the plaintiffs, Erlanger & Galinger for one-half of the net proceeds of sales amounting to
P74,298.36 and one-half of the interest accruing thereon, and against Carl Maeckler for the sum of
P925, and against the New Zealand Insurance Company (Ltd.) for the of P2,800, and against whomever
the two cases marked R W, Copenhagen, were delivered to, and for the sum of P2,370.68, out of the
proceeds of the sale of 1,000 cases of vegetable oil, and in favor of the 'Oelwerke Teutonia' for the sum
of P71,328.53, now deposited with the Hongkong & Shanghai Banking Corporation, together with one-
half of the interest thereon."

No costs were taxed.

The Oelwerke Teutonia, The New Zealand Insurance Company (Ltd.). and Erlanger & Galinger appealed
from this decision. The Oelwerke Teutonia made the following assignments of error:

"(I) The court below erred in finding that the plaintiffs are salvors of the copra in question. (II) The
court erred in holding that the plaintiffs are entitled to recover one-half of the proceeds of the copra.
(III) The court erred in rendering judgment in favor of the plaintiffs for half of the proceeds of the copra.
(IV) The court erred in disallowing the defendant's counterclaim. (V) The court erred in overruling
defendant's motion for a new trial."

The New Zealand Insurance Company (Ltd.) made the following assignments of error:

"Now comes the New Zealand Insurance Company (Ltd.), defendant and appellant in the above-entitled
cause, and avers that in the proceedings in the said cause, in the Court of First Instance of Manila, there
was manifest error to the prejudice of this appellant, in this, to wit:

"(I) That said court found that plaintiffs are entitled to one-half of the value of thirty crates of agar-
agar delivered to this appellant; (II) That the said court ordered judgment in favor of the plaintiffs and
against this appellant for the sum of P2,800; (III) That the said court denied the motion of this appellant
for a new trial."

The appellants, Erlanger & Galinger, made the following assignments of error:
"Error No. 1. The court erred in ruling that the plaintiffs were not entitled to a reimbursement of their
expenses, out of the gross value of the salved property, before the division of the remainder into
moieties between the salvors and the claimants. Error No. 2. The court erred in holding that the cargo
and the vessel are equally chargeable with the expense of salvage. Error No. 3. The court erred in
refusing to award the plaintiffs, out of the proceeds of the sale of the cargo, the sum of P28,755.86 as
compensation and the sum of P98,720 as reimbursement of expenses, or a total of P127,475.08. Error
No. 4. The court erred in awarding into the claimant 'Oelwerke Teutonia' the sum of P71,328.53, or any
part thereof out of the proceeds of the salved cargo. Error No. 5. The court erred in denying the motion
of the plaintiffs for a new trial."

The assignments of error and the briefs of all of the appellants raise but three questions: (1) Was the
ship abandoned? (2) Was the salvage conducted with skill, diligence, and efficiency? (3) Was the award
justified?

The general rules and principles governing salvage services and salvage awards are well settled. This
branch of the law of the sea dates back to the early history of navigation. We find recorded in the Laws
of Oleron, which were promulgated sometime before the year 1226, at article IV:

"If a vessel, departing with her lading from Bordeaux, or any other place, happens in the course of her
voyage, to be rendered unfit to proceed therein, and the mariners save as much of the lading as possibly
they can; if the merchants require their goods of the master, he may deliver them if he pleases, they
paying the freight in proportion to the part of the voyage that is performed, and the costs of the salvage.
But if the master can readily repair his vessel, he may do it; or if he pleases, he may freight another ship
to perform his voyage. And if he has promised the people who help him to save the ship the third, or the
half part of the goods saved for the danger they ran, the judicatures of the country should consider the
pains and trouble they have been at, and reward them accordingly, without any regard to the promises
made them by the parties concerned in the time of their distress." (See 30 Fed. Cas., at page 1172).

The courts of the United States and England have, in a long line of adjudicated case, discussed the
various phases of this important subject. In general, salvage may be defined as a service which one
person renders to the owner of a ship which the owner or those entrusted with them are unable to
protect and secure. The Supreme Court of the United States and the other Federal Courts of the United
States have had occasion numerous times to quote with approval the following definition from Flanders
on Maritime Law:

"Salvage is founded on the equity of remunerating private and individual services performed in saving,
in whole or in part, a ship or its cargo from impending peril, or recovering them after actual loss. It is a
compensation for actual services rendered to the property charged with it, and is allowed for
meritorious conduct of the salvor, and in consideration of a benefit conferred upon the person whose
property he has saved. A claim for salvage rests on the principle that, unless the property be in fact
saved by those who claim the compensation, it can not be allowed, however benevolent their intention
and however heroic their conduct." (The Job H. Jackson, 161 Fed. Rep., 1015, 1017; The Amelia, 1
Cranch, 1; The Alberta, 9 Cranch, 369; Clarke vs. Dodge Healy, 4 Wash. C. C., 651; Fed. Cas. No. 2849.)
In the case of Williamson vs. The Alphonso (Fed. Cas., No. 17749; 30 Fed. Cas., 4, 5), the court laid down
practically the same rule.

"The relief of property from an impending peril of the sea, by the voluntary exertions of those who are
under no legal obligation to render assistance, and the consequent ultimate safety of the property,
constitute a case of salvage. It may be a case of more or less merit, according to the degree of peril in
which the property was, and the danger and difficulty or relieving it; but these circumstances affect the
degree of the service and not its nature."

In Blackwall vs. Saucelito Tug Company (10 Wall., 1, 12), the court said:

"Salvage is the compensation allowed to persons by whose assistance a ship or her cargo has been
saved, in whole or in part, from impending peril on the sea, or in recovering such property from actual
loss, as in case of shipwreck, derelict, or recapture."

It will be noticed from the above definitions that there are certain definite conditions which must always
exist in a case of pure salvage. The Supreme Court of the United States, speaking through Mr. Justice
Clifford, in the case of The Mayflower vs. The Sabine (101 U. S., 384) makes those conditions three (p.
384).

"Three elements are necessary to a valid salvage claim: (1) A marine peril. (2) Service voluntarily
rendered when not required as an existing duty or from a special contract. (3) Success, in whole or in
part, or that the service rendered contributed to such success."

These are the general principles governing salvage.

The question whether or not a particular ship and her cargo is a fit object of salvage depends upon her
condition at the time the salvage services are performed. In the present case the plaintiff-appellant
claims that the Nippon was a derelict or quasi-derelict and that their claim should be adjudged upon this
basis. A derelict is defined as "A ship or her cargo which is abandoned and deserted at sea by those who
were in charge of it, without any hope of recovering it (sine spe recuperandi), or without any intention
of returning to it (sine animo revertendi). Whether property is to be adjudged derelict is determined by
ascertaining what was the intention and expectation of those in charge of it when they quitted it. If
those in charge left within the intention of returning, or of procuring assistance, the property is not
derelict, but if they quitted the property with the intention of finally leaving it, it is derelict, and a
change of their intention and an attempt to return will not change of their intention and an attempt to
return will not change its nature." (Abbott's Law of Merchant Ships and Seamen, Fourteenth Edition, p.
994.)

This contention of the plaintiffs raises the first question: (1) Was the ship abandoned?

The defendant-appellant Oelwerke Teutonia contends that the captain and the crew did not leave the
ship sine amino revertendi, but that it was their intention to go to the Hongkong and procure assistance
with which to save the ship and her cargo. Whether the intention to return exists in a particular case is
always difficult to determine. It is indeed a rare case when the master of the ship will leave without the
intention of returning, if there is the slightest hope of saving his vessel. In the case of The Coromandel (1
Swab., 208) Dr. Lushington said:

"It may be perfectly true that the master and these fifteen men, when they had got on board The Young
Frederick, and were sailing away to Yarmouth, intended, if possible, to employ steamers to go and
rescue the vessel, which was at no great distance. But is not that the case every day? A master and crew
abandon a vessel for the safety of their lives; he does not contemplate returning to use his own
exertions, but the master hardly ever abandons a vessel on the coast without the intention, if he can
obtain assistance, to save his vessel. That does not take away the legal character of derelict. (Norcross
vs. The Laura, 14 Wall., 336.)"

Judge Crossfield found that:

"At the time the plaintiff commenced the attempt to salve what was possible of the S. S. Nippon and
cargo, it was justified, from all the conditions existing, in believing that it had abandoned and in taking
possession, even though the master of the vessel intended when he left it, to return and attempt
salvage.

"Such intention, if it existed, does not appear to have been very firmly fixed, considering the leisurely
manner in which the master proceeded after he reached the Port of Hongkong."

The evidence amply supports this finding. The chief officer, Weston, upon reaching the coast of
Zambales, on May 12, 1913, sent the following telegram to the Director of the Bureau of Navigation:

"SANTA CRUZ, ZAMBALES,

"May 12, 1913.

"DIRECTOR OF BUREAU OF NAVIGATION, Manila.

"Nippon stranded on Scarborough Reef, wants immediate assistance for saving crew boats gone
12.15 p. m.

(Sgd.) "R. WESTON."

On the evening of the same day Weston sent the following telegram:

"SANTA CRUZ, ZAMBALES,

"May 12, 1913.

"DIRECTOR OF BUREAU OF NAVIGATION, Manila.

"Left with nine hands at noon, 9th, 26 men still on board, ship well on reef, stern part afloat, about ten
feet of water in holds, starboard list, heavy swell breaking over, little hope of saving ship 6.27 p. m.

(Sgd.) "WESTON."
On May 13, 1913, Captain Dixon of the S. S. Manchuria, after rescuing the remainder of the crew, left on
board the Nippon, sent the following telegram to the Director of Navigation:

S. S. 'MANCHURIA,' May 13, 1913.

"All rescued from the Nippon. Stranded on extreme north end of shoal. Vessel stranded May 9th. She is
full of water fore and aft, and is badly ashore. Ship abandoned. Proceeding Hongkong 9.40 a. m.

(Sgd.) "DIXON, Master."

On May 14, 1913, after the members of the crew who came ashore with Weston had reached Manila,
they made the following signed statement:

"MANILA, P. I., May 14, 1913.

"We, the undersigned officers and part of the crew of the Swedish steamer Nippon, do hereby declare
that the S. S. Nippon struck on Scarborough Reef, about 4.30 on the afternoon of Thursday, May 8,
1913. Two of her boats were lost after we struck the reef, leaving only two abroad and those damaged.
The ship was filled with water and pounding on the reef and we considered her a wreck. In company
with the chief officer, we left the ship about noon on Friday, May 9, 1913, in a small boat and reached
Santa Cruz, Zambales, a distance of 130 miles on the morning of Monday, May 12, 1913, and
immediately the chief officer wired to the Director of Navigation at Manila for assistance to rescue the
balance of the crew left abroad the Nippon, as we considered their lives in danger and the ship a wreck,
with little hope of saving her.

(Signed.)

"F. CARMAN, "A. G. ERICKSOON,

"G. E. JOHANSSON, "F. PALM,

"W. BRATT, "J. KARLBERG,

"B. NYOLRAM, "E. THULIN

"E. PETTERSON.

On May 16, 1913, Captain Anderson of the coast guard cutter Mindoro, made the following report to
the Director of Navigation:

"S. S. 'MINDORO.'

"MANILA, P. I., May 16, 1913.

"SIR:

"I have the honor to make the following report of voyage made to Scarborough Reef, May 12 to 14,
1913 for officers and crew of S. S. Nippon.
"May 13, 1913, being 2 1/2 miles south of reef, I observed S. S. Nippon stranded on the N. E. edge of
reef. I immediately steered northward around the western edge of reef and arrived off stranded ship at
9.30 a. m. S. S. Manchuria was laying to about 1 1/2 miles northward of reef, making signals for me to
come alongside. I immediately proceeded out to the Manchuria; upon arrival alongside the Manchuria
the captain of the same ship informed me that the S. S. Nippon was abandoned and that he had the
captain and crew on board for Hongkong. I then asked the captain of the Manchuria if the captain of the
Nippon cared to go to Hongkong, as I was there to bring him and the crew to Manila if he desired to go.
The captain of the Manchuria again informed me that the captain of the Nippon intended to go to
Hongkong. I answered 'All right, I will then go and have a look at the Nippon and see how badly she is
wrecked.' The captain of the Manchuria made the remark that she was half full of water and that she
was very badly wrecked, but that there was still some baggage left on board. He also informed me that
he had a wire from the Director of Navigation ordering me to proceed to Santa Cruz to pick up boat's
crew from Nippon. I said, 'All right. I will go and get baggage and have a look at the wreck.' O then left
the Manchuria and steamed over to the wreck. On arrival alongside of the wreck I took on board all
baggage packed standing on deck and sounded around the ship, fore and aft, finding 11 feet of water
forward at low water and 20 feet aft in board, gradually decreasing from forward to aft and I found in
holds about 8 feet of water and the cargo as far as I could see, on top, was nice and dry, and it is my
opinion that with the position the ship is laying in and with the Southwest monsoon blowing the ship
and most of the cargo can be salved, if work is started before the heavy typhoon season sets in. After
leaving the wreck, I proceeded to Santa Cruz and picked up the first officer and crew of nine men and
brought them to Manila.

"On my second trip to the wreck, May 15th, I examined Nippon more fully and I believe that if the cargo
is taken out the ship can be saved after the holes are pathed up, if this is done before the heavy weather
sets in.

"Very respectfully,

(Sgd.) "GEO. ANDERSON,

"Captain, 'Mindoro.'

"THE DIRECTOR OF NAVIGATION, Manila.

"Copy sent Struckman & Company, May 16, 1913.

(Sgd.) "A. S. Thompson, chief clerk."

The testimony of Captain Eggert of the Nippon regarding the circumstances of the wreck, is as follows:
(2d part of record, p. 327).

"(P. 334.) Q. When the Manchuria visited the scene of the wreck on May 13, how many of you
went on board? A. We all went to board.

"Q. By 'all' you mean yourself, passenger, and all the members of the crew that remained? A. Yes.
"Q. What did you take with you? A. Just personal luggage, not all, what you could carry in a small
boat; it could not be very much considering that the boat was broken and there were 27 men, the ship's
chronometer and ship's papers.

"Q. What do you mean by 'ship's paper's? A. Register, articles.

"Q. Did you take the ship's log? A. Yes; that is the first thing I take.

"Q. That is the first thing you take under what circumstances? A. Under any circumstances of
accidents to the ship; because it is the official record up to the time an accident happens.

"Q. Do you mean to state, captain, that in the event of any accident to a ship, no matter haw slight,
that the ship's log and register and articles are taken ashore? A. The ship's log on any occasion has to
be brought before the Swedish Consul.

"Q. How about the register and articles? A. Of course not.

"Q. Under what circumstance do you take ashore the ship's articles and register? A. When I leave
the ship myself I have, of course, to take those papers with me.

"Q. Every time you leave the ship? A. No. Every time when I leave it stranded as she was. If I go
on shore and try to get means for taking my ship off the ground, I have to prove what ship it is and all
that. In the meantime a gale may come up and the ship be torn off the rock and destroyed and the
papers lost."

"(P. 336.) Q. What were the conditions prevailing aboard the ship from the time that she stranded
until the Manchuria arrived? A. The first night there was very bad sea and high wind. The ship was
thrown up on the reef and bumping. Seas were washing right over all the time. Couldn't leave in the
boats if we had tried to. The next morning was also bad, but a little better. It became so much better
that we could send the boat off about 11 o'clock in the forenoon by using precautions oil, etc. The third
and fourth day the weather was fine."

"(P. 337.) Q. And do you now admit that you were mighty glad to get off the Nippon? A. We
were all mighty glad.

"Q. Why were you mighty glad? A. Chiefly because the crew had insisted on leaving the ship in
some way, by building rafts, or in that boat of ours. And secondly because of the uncertainty. We did not
know if our boat had reached shore. The scene of the accident was quite out of the track of any vessel,
so it was quite natural when we saw that ship coming up we were glad to get into communication with
the outside world.

"Q. You say that the crew had insisted on leaving the ship? A. They were not insisting on it
because they can not insist against the master of a ship. But they would like to get off.

"Q. Why were they discussing the question? A. Because they considered it better to leave the
ship and reach land rather than stay on the ship, not knowing if the boat had reached land or not.
"Q. They considered it better for what purpose? A. Being safe.

"Q. You mean better from the standpoint of safety of their life and limb? A. Yes. To their lives."

"(P. 343.) Q. Captain, if your purpose in leaving the Nippon was to go to Hongkong for the purpose
of arranging for her salvage, why did you not leave some of the crew on board? A. How could I leave
some of the crew on board when there was no attendant? There could be a gale at any time and the
ship would have slipped off and broken to pieces. I first of all was responsible for their lives."

"(P. 348.) Q. (By Mr. Rohde.) Captain, did you or did you not leave the Nippon, with the intention
of returning and the hope of recovering your ship and cargo? A. I left the Nippon with the full
intention of returning to the ship and try to recover her, and I discussed that matter during the three
days we were on the reef with every member I could see in the crew, and with the passenger.
Everybody knew as soon as I put my foot on the Manchuria it was for the purpose of getting assistance.
Captain Dixon knew, his officers knew it, and his crew it.

"(Mr. Cohn.) You have not fully replied to the question asked you by counsel for the defendant,
which is whether you had the hope of recovering the ship. A. I had hope if the weather continued
fine.

"(Mr. Cohn.) If you had that hope why didn't you leave some of your crew on board? A. Because
the hope would not justify me leaving any of the crew on the ship.

"(Mr. Cohn.) Your hope was so slight it did not warrant your leaving anybody on board? A. A hope
is always slight. I mean to say your hope will never justify you to risk another man's life, even if you have
a very good foundation for your hope. Life comes before property.

"(Mr. Cohn.) Just what do you mean by 'hope'? A. I mean to say that if the weather continues fine
there is no risk, but if there is a typhoon or gale we will be worse off and the ship will be smashed and
the crew perish. That is what I mean by a 'hope' in this occasion.

"(Mr. Cohn.) What you mean, Captain, is that you were going to Hongkong and if you could find some
one that was willing to go out and look for your ship, and if your ship was still there, that you would
undertake to salve her if you could. A. Of course."

Chief Engineer Emil Gohde was asked why the crew wanted to get ashore.

"(P. 353.) Q. Why did they want to get to shore? A. They wanted to save their lives. We didn't
know the weather in the China Sea. We could have expected a typhoon in a couple of days and very
likely the ship would have gone into the sea."

"Captain Eggert sent the following cablegram to the owners of the Nippon, after reaching Hongkong on
May 14, 1913:

"(P. 360.) Nippon wrecked during typhoon eight May Scarborough Shoal latitude 15 longitude 118
probably total wreck bottom seriously damaged ship full of water chief officer and nine men took to
boat for rescue landed twelfth Luzon mailsteamer Manchuria saved captain and remaining crew
morning thirteenth. Arrived Hongkong to-night. Wreck on edge of reef, will probably slip off and sink by
first gale captain arranging to visit wreck and attempt salvage.

"EGGERT."

Captain Eggert did not make any determined effort to arrange for the salvage of the Nippon, as will be
seen from the testimony.

"(P. 330. Captain Eggert testifying). Q. What did you do upon your arrival in Hongkong? A. The
first thing I did it was about 5 o'clock in the afternoon I went to the office of our agents my
owners' agents. It was then closed up so I had to proceed to the private residence of the manager. From
there I dispatched a telegram to the owners.

"Q. What date was this telegram sent? A. On the evening of the 14th.

"Q. Of what month? A. Of May.

"Q. Did you enter into any negotiations with persons or firms? A. Yes. The first thing in the
morning of the 15th I visited together with the Swedish Consul the Tykoo dockyard people, the
Hongkong dockyard people, and went to the Mitsui Bussan Kaisha branch office, and those people sent
a wire to their home office in Nagasaki.

"Q. What, if anything, interrupted your negotiations with the firms and persons in Hongkong
relative to the salvage of the Nippon and her cargo? A. A wire form my owners.

xxx xxx xxx

"Q. When was this telegram received by you, Captain? A. On the 17th.

"Q. What did you do then? A. I tried to find out when the next steamer was leaving for Manila
and there was none leaving before the 20th, the steamer I took and proceeded here."

From the above it will be seen that Capt. Eggert had over two days in which to arrange for salvage
operations and he did nothing, while the plaintiffs, who were strangers and had no interest, sent out a
salvage expedition in twenty-four hours after they discovered that the ship was wrecked.

The evidence proves that the Nippon was in peril; that the captain left in order to protect his life and the
lives of the crew; that the animo revertendi was slight. The argument of the defendant-appellant to the
effect that the ship was in no danger is a bit out of place in view of the statement of the captain that she
would sink with the first gale, coupled with the fact that a typhoon was the cause of her stranding.

The Federal Courts have, a number of times, had presented to them cases in which the facts were very
similar to the facts in the present case. The claim for salvage was allowed in each of these cases. In The
Bee (Fed. Cas. No. 1219; 3 Fed. Cas., 41), the facts were as follows: The Bee sailed from Boston to Nova
Scotia. Three days after leaving port a gale was encountered which forced her to run into a cove on the
north side of Grand Manan Island, where an anchor was let out. The ship was somewhat injured from
the force of the storm. The master and the crew stayed on board for 24 hours and then went ashore to
procure assistance. The island was very sparsely settled. They met on shore a number of men (the
libelants) to whom they explained the predicament and position of the ship. These men immediately
went to the ship, boarded her, and took possession. After the master had been ashore about five hours
he returned to the ship and found the libelants in possession. The owners contended that the master
was excluded from the ship wrongfully and therefore the libelants could not claim salvage. The court
stated the law as follows (p. 44):

"When a vessel is found at sea, deserted, and has been abandoned by the master and crew without the
intention of returning and resuming the possession, she is, in the sense of the law, derelict, and the
finder who takes the possession with the intention of saving her, gains a right of possession, which he
can maintain against the true owner. The owner does not, indeed, renounce his right of property. This is
not presumed to be his intention, nor does the finder acquire any such right. But the owner does
abandon temporarily his right of possession, which is transferred to the finder, who becomes bound to
preserve the property with good faith, and bring it to a place of safety for the owner's use; and he
acquires a right to be paid for his services a reasonable and proper compensation, out of the property
itself. He is not bound to part with the possession until this is paid, or it is taken into the custody of the
law, preparatory to the amount of salvage being legally ascertained. Should the salvors meet with the
owner after an abandonment, and he should tender his assistance in saving and securing the property,
surely this ought not, without good reasons, to be refused, as this would be no bar to the right of
salvage, and should it be unreasonably rejected it might affect the judgment of a court materially, as to
the amount proper to be allowed. Still, as I understand the law, the right possession is in the salvor. But
when the owner, or the master and crew who represent him, leave a vessel temporarily, without any
intention of a final abandonment, but with the intent to return and resume the possession, she is not
considered as a legal derelict, nor is the right of possession lost by such temporary absence for the
purpose of obtaining assistance, although no individual may be remaining on board for the purpose of
retaining the possession. Property is not, in the sense of the law, derelict and the possession left vacant
for the finder, until the spes recuperandi is gone, and the animus revertendi is finally given up. (The
Aquila, 1 C. Rob. Adm., 41.) But when a man finds property thus temporarily left to the mercy of the
elements, whether from necessity or any other cause, though not finally abandoned and legally derelict,
and he takes possession of it with the bona fide intention of saying if for the owner, he will not be
treated as a trespasser. On the contrary, if by his exertions he contributes materially to the preservation
of the property, he will entitle himself to a remuneration according to the merits of his service as a
salvor."

The court allowed salvage in this case. They held that the master had taken insufficient precautions to
protect this vessel and although the ship was not a legal derelict, the libelants were salvors and entitled
to salvage.

In The John Gilpin (Fed. Cas. No. 7345; 13 Fed. Cas., 675) the ship John Gilpin, attempting to leave New
York harbor in a winter storm, was driven ashore. The ship's crew sent for help and in the meantime put
forth every effort to get her off. Help arrived toward evening, but accomplished nothing. The master and
crew went ashore. The same night the libelants went out to the ship with equipment and started
working. It was contended that the master had gone ashore for assistance. He returned the next
morning with a tug and some men and demanded possession, which was refused. Salvage was allowed.
The court said (p. 676):

"The libelants, in the exercise of their calling as wreckers, coming to a vessel in that plight, would be
guilty of a dereliction of duty if they failed to employ all their means for the instantaneous preservation
of property so circumstanced. This may not be strictly and technically a case of derelict (Clarke vs. The
Dodge Healy, Case No. 2849), if really the master of the brig had gone to the city to obtain the necessary
help to save the cargo and brig, intending at the time, to return with all practicable dispatch. It appears
he came to the wreck by 8 or 9 a. m. the following day, in a steam-tug, with men to assist in saving the
cargo. The animus revertendi et recuperandi may thus far have continued with the master, but this
mental hope or purpose must be regarded inoperative and unavailing as an actual occupancy of the
vessel, or manifestation to others of a continuing possession. She was absolutely deserted for 12 or 14
hours in a condition when her instant destruction was menaced, and the lives of those who should
attempt to remain by her would be considered in highest jeopardy. She was quite derelict; and being
thus found (The Boston, Case No. 1673; Rowe vs. The Brig, Case No. 12093; 1 Sir Lionel Jenkins, 89) by
the libelants, the possession they took of her was lawful. (The Emulous, Case No. 4480.)

"Possession being thus taken when the vessel was, in fact, abandoned and quite derelict, under peril of
instant destruction, the libelants had a right to retain it until the salvage was completed, and no other
person could interfere against them forcibly, provided they were able to effect the purpose, and were
conducting the business with fidelity and vigor."

In The Shawmut (155 Fed. Rep., 476) the court allowed salvage upon the following facts: The four-
masted schooner Myrthle Tunnel sailed from Brunswick bound for New York The first day out a
hurricane struck her and tore the sails away and carried off the deck load. She was badly damaged and
leaking. The master of the Myrthle Tunnel requested towage by the steamship Mae to the port of
Charleston. The Mae, on account of her own damaged condition, was unable to tow but she took the
master and crew of the Myrthle Tunnel off and landed them at Charleston. The owners notified and they
started an expedition out in search. Before this expedition reached her, the steamship Shawmut sighted
the Myrthle Tunnel, and, finding that she was abandoned and waterlogged, took her in tow and
succeeded in taking her to Charleston. The owners of the Myrthle Tunnel contended that she was not
derelict, because the master had gone ashore to procure assistance. With reference to this question, the
court said (p. 478).

"The first question that arises is whether the Myrthle Tunnel is a derelict. Prima facie a vessel found at
sea in a situation of peril, with no one aboard of her, is a derelict; but where the master and crew leave
such vessel temporarily, without any intention of final abandonment, for the purpose of obtaining
assistance, and with the intent to return and resume possession, she is not technically a derelict. It is not
of substantial importance to decide that question. She was what may be called a quasi-derelict;
abandoned, helpless, her sails gone, entirely without power in herself to save herself from a situation
not of imminent but of considerable peril; lying about midway between the Gulf Stream and the shore,
and about 30 miles from either. An east wind would have driven her upon one, and a west wind into the
other, where she would have become a total loss. Lying in the pathway of commerce, with nothing
aboard to indicate an intention to return and resume possession, it was a highly meritorious act upon
the part of the Shawmut to take possession of her, and the award must be governed by the rules which
govern in case of derelicts; the amount of it to be modified in some degree in the interest of the owners
in consideration of their prompt, intelligent, and praiseworthy efforts to resume possession of her,
wherein they incurred considerable expense."

The first of these cases was decided in 1836 and the last in 1907. They indicate that the abandonment of
a vessel by all on board, when the vessel is in peril, will justify third parties in taking possession with the
bona fide intention of saving the vessel and its cargo for its owners. The mental hope of the master and
the crew will in no way affect the possession nor the right to salvage. See also The Hyderabad (11 Fed.
Rep., 749), The Cairnsmore (20 Fed. Rep., 519), Pearce vs. The Ann L. Lockwood (37 Fed. Rep., 233).

This brings us to the second question raised by the assignments of error: (2) Was the salvage conducted
with skill, diligence, and efficiency? The court found:

"While the plaintiff entered upon the salvage proceedings without proper means and not being adapted
by their business to conduct their work, and while it may appear that possibly the salvage might have
been conducted in a better manner and have accomplished somewhat better results in the saving of the
copra cargo, yet it appears that they quickly remedied their lack of means and corrected the conduct of
the work so that it accomplished fairly good results.

"It does not appear from the evidence that anyone then or subsequently suggested or found any other
course which might have been pursued and which would have brought better results."

There was some dispute whether Manila or Hongkong should be used as a base for operations. Capt.
Robinson, who was the only one of the experts who had had any experience in handling wet copra,
unqualifiedly approved Manila as a base for operations. (P. 437, 3d part of record):

"Q. Assuming that you had been asked to undertake the work of salving the steamer Nippon and
her cargo, please state whether you would have undertaken that work with the men and material
available in Manila, or whether you would have gone to Hongkong and used Hongkong men and
material and made Hongkong your base of operations. A. Certainly not. I would have made Manila my
base, which I always have done."

Lebreton, a stevedore, testified that he would have gotten some of his materials from Hongkong but
that he would have freighted the salved cargo to Manila. All other things being equal, the fact that
Hongkong is forty sailing hours from Scarborough Reef while Manila is less than twenty-four sailing
hours would make Manila by far the more logical base.

The plaintiffs sent men into the hold of the ship and sacked the copra and brought it to Manila where it
was sold. Some of the witnesses contended that other methods should have been used. They testified
that "grabs" or "clam shells" would have brought better results, but none of these witnesses had had
any experience in unloading wet copra. Capt. Robinson was the only witness called who had had any
experience in this class of work. He testified that the only way all the copra could be gotten out was by
sacks or by canvas slings; that "grabs" would be of no use because of the inability to work with them
between decks. The copra was in three layers. The top layer was dry, the middle layer was submerged
every time the tide rose, and the lower layer was submerged all of the time. It was manifestly impossible
to keep these layers separate by using "grabs" or "clam shells." The fact that wet copra is exceedingly
difficult to handle, on account of the gases which arise from it, is also of prime importance in weighing
the testimony of defendant's witnesses, because none of them had ever had experience with wet copra.

The plaintiffs commenced the actual work of salving the ship and cargo on May 18, 1913. The last of the
cargo was brought to Manila the latter part of June. The last of the dry copra was brought to Manila on
June 5. The estimates of the experts with regard to the time necessary to remove the cargo ranged from
eight to twenty days. The greater portion of the cargo was brought in by the plaintiffs within fifteen
days. The delay after June 5 was due to the difficulty in inducing laborers to work with wet copra. This
difficulty would have arisen with any set of salvors and cannot be attributed to a lack of care or diligence
on the part of the plaintiffs.

The plaintiffs were diligent in commencing the work and were careful and efficient in its pursuit and
conclusion.

The third and last question is with regard to the amount of the award (3) Was the award justified?

"Compensation as salvage is not viewed by the admiralty courts merely as pay on the principle of
quantum meruit or as a remuneration pro opere et labore, but as a reward given for perilous services,
voluntarily rendered, and as an inducement to mariners to embark in such dangerous enterprises to
save life and property." (The Mayflower vs. The Sabine, 101 U. S., 384.)

The plaintiff-appellant contends that the expenses incurred should be deducted from the entire amount
of the salved property and the remainder be divided as a reward for the services rendered. This
contention has no basis in law of salvage compensation. The expenses incurred by the plaintiffs must be
borne by them. It is true that the award should be liberal enough to cover the expenses and give an
extra amount as a reward for the services rendered but the expenses are used in no other way as a basis
for the final award. A part of the risk that the plaintiffs incurred was that the goods salved would not pay
them for the amount expended in salving them. The plaintiffs knew this risk and they should not have
spent more money than their reasonable share of the proceeds would amount to under any
circumstances.

In the case of The Carl Schurz (Case No. 2414; 5 Fed. Cas., 84) the actual expenditure by the libelant in
salving the vessel in question was $568.95. The ship when sold brought $792. The libelant wanted the
court to first deduct the expenses. The court refused to do this but decreed a moiety. The court said (p.
86):

"A salvor, in the view of the maritime law, has an interest in the property; it is called a lien, but it never
goes, in the absence of a contract expressly made, upon the idea of a debt due by the owner to the
salvor for services rendered, as at common law, but upon the principle that the service creates a
property in the thing saved. He is, to all intents and purposes, a joint owner, and if the property is lost
he must bear his share like other joint owners.

"This is the governing principle here. The libelant and the owners must mutually bear their respective
share of the loss in value by the sale. If the libelant has been unfortunate and has spent his time and
money in saving a property not worth the expenditure he made, or if, having saved enough to
compensate him, it is lost by the uncertainties of a judicial sale for partition, so to speak, it is a
misfortune not uncommon to all who seek gain by adventurous speculations in values. The libelant says
in his testimony that he relied entirely on his rights as a salvor. This being so he knew the risk he ran and
it was his own folly to expend more money in the service than his reasonable share would have been
worth under all circumstances and contingencies. He can rely neither on the common law idea of an
implied contract to pay for work on and about one's property what the work is reasonably worth with a
lien attached by possession for satisfaction, nor upon any motion of an implied maritime contract for
the services, with a maritime lien to secure it, as in the case of repairs, or supplies furnished a needy
vessel, or the like. In such a case the owner would lose all if the property did not satisfy the debt, when
fairly sold. But this doctrine has no place in the maritime law of salvage. It does not proceed upon any
theory of an implied obligation, either of the owner or the res, to pay a quantum meruit, nor actual
expenses incurred, but rather on that of a reasonable compensation or reward, as the case may be, to
one who has rescued the res from danger of total loss. If he gets the whole, the property had as well
been lost entirely, so far as the owner is concerned. (Smith vs. The Joseph Stewart, Fed. Cas. No. 13070.)
I think the public policy of encouragement for such service does not, of itself, furnish sufficient support
for a rule which would exclude the owner from all benefit to be derived from the service."

In Williams vs. The Adolphe (Fed. Cas. No. 17712; 29 Fed. Cas., 1350) the court said (p. 1353):

"The claim of the libelants is for salvage, the services rendered were salvage services and the owners are
to receive their property again, after paying salvage for the services rendered them. What service would
it be to them to take their property under circumstances calling for the whole of it by way of indemnity?
The mistake of the captain and the supercargo, and part owner of the Triton as to the value of the
property on board the Adolphe, should not operate to the injury of the owners thereof; the salvors must
bear the consequences of their own mistake, taking such a proportion only of the property salved, as by
the law of the admiralty should be awarded them."

In The Edwards (12 Fed. Rep., 508, 509), the court said:

"It is true that in rendering a salvage service the salvor assumes the risks of failure, and his salvage
depends upon his success and the amount of property saved; yet when there is enough to fully
compensate him for time and labor, and leave an reasonable proportion for the owner, he should
certainly be awarded that, if the amount will allow no more."

In The L. W. Perry (71 Fed. Rep., 745, 746), the court said:
"Without regard to the element of reward which is intended by the salvage allowance, it is manifest that
remuneration pro opere et labore would be placed in excess of the fund here, if such basis were
allowable. Therefore, it is contended on behalf of the libelant that the entire sum remaining should be
awarded for the salvage service; . . ..

"While salvage is of the nature of a reward for meritorious service, and for determination of its amount
the interests of the public and the encouragement of others to undertake like service are taken into
consideration, as well as the risk incurred, and the value of the property saved, and where the proceeds
for division are small, the proportion of allowance to the salvor may be enlarged to answer these
purposes, nevertheless, the doctrine of salvage requires, as a prerequisite to any allowance, that the
service 'must be productive of some benefit to the owners of the property salved; for, however
meritorious the exertions of alleged salvors may be, if they are not attended with benefit to the owners,
they can not be compensated as such." (Abb. Shipp. [London Ed., 1892], 722.) The claim of the libelant
can only be supported as one for salvage. It does not constitute a personal demand, upon quantum
meruit, against the owners, but gives an interest in the property saved, which entitles the salvor to a
liberal share of the proceeds. . . ."

"(P. 747.) One of the grounds for liberality in salvage awards is the risk assumed by the salvor,
that he can have no recompense for service or expense unless he is successful in the rescue of property,
and that his reward must be within the measure of his success. He obtains an interest in the property,
and in its proceeds when sold, but accompanied by the same risk of any misfortune or depreciation
which may occur to reduce its value. In other words, he can only have a portion, in any event; and the
fact that his exertions were meritorious and that their actual value, or the expense actually incurred,
exceeded the amount produced by the service, cannot operate to absorb the entire proceeds against
the established rules of salvage. (The Carl Schurz, Fed. Cas. No. 2414)."

The plaintiff-appellants contend that the award of the lower court of one-half is the established rule in
cases f derelicts and should not be disturbed. It is well established now that the courts have a wide
discretion in settling the award. The award is now determined by the particular facts and the degree of
merit. In The Job H. Jackson (161 Fed. Rep., 1015, 1018), the court said:

"There is no fixed rule for salvage allowance. The old rule in cases of a derelict was 50 per cent of the
property salved; but under modern decisions and practice, it may be less, or it may be more. The
allowance rests in the sound discretion of the court or judge, who hears the case, hears the witnesses
testify, looks into their eyes, and is acquainted with the environments of the rescue. . . . An allowance
for salvage should not be weighed in golden scales, but should be made as a reward for meritorious
voluntary services, rendered at a time when danger of loss is imminent, as a reward for such services so
rendered, and for the purpose of encouraging others in like services."

In The Lamington (86 Fed. Rep., 675, 678), the court said:

"While it appears most clearly that, since the old hard and fast rule of '50 per cent of a derelict' was
abandoned, the award is determined by a consideration of the peculiar facts of each case, it is none the
less true that the admiralty courts have always been careful not only to encourage salving enterprises by
liberality, when possible, but also to recognize that it is, after all, a speculation in which desert and
reward not always balance."

The award is largely in the discretion of the trial court and it is rare that the appellate court will disturb
the finding.

"Appellate courts rarely reduce salvage awards, unless there has been some violation of just principles,
or some clear or palpable mistake. They are reluctant to disturb such award, solely on the ground that
the subordinate court gave too large a sum, unless they are clearly satisfied that the court below made
an exorbitant estimate of the services. It is equally true that, when the law gives a party a right to
appeal, he has the right to demand the conscientious judgment of the appellate court on every question
arising in the case, and the allowance of salvage originally decreased has, in many cases, been increased
or diminished in the appellate court, even where it did not violate any of the just principles which should
regulate the subject, but was unreasonably excessive or inadequate. (Post vs. Jones, 19 How., 161).
Although the amount to be awarded as salvage rests, as it is said, in the discretion of the court awarding
it, appellate courts will look to see if that discretion has been exercised by the court of first instance in
the spirit of those decisions which higher tribunals have recognized and enforced, and will readjust the
amount if the decree below does not follow in the path of authority, even though no principle has been
violated or mistake made."

The property of the defendant-appellants which was salved was forced to pay the same proportion of
the award without distinction. The dry copra and the agar-agar was salved with much more ease than
the wet copra. The courts have, almost universally, made a distinction in this regard. In The America (1
Fed. Cas., 596), decided in 1836, the award was as follows: 25 per cent on cargo salved dry; 50 per cent
on cargo salved damaged; 60 per cent on cargo salved by diving.

In The Ajax (1 Fed. Cas., 252), decided in 1836, the award was as follows: 33 per cent on the dry; 50 per
cent on the wet; 50 per cent on ship's materials.

In The Nathaniel Kimball (Fed. Cas. No. 10033), decided in 1853, the award was as follows: 30 per cent
on dry cargo; 50 per cent on wet, salved by diving and working under water.

In The Brewster (Fed. Cas. No. 1852), decided in 1848, the award was as follows: 33 per cent, and as to
some cargo where diving was necessary, 60 per cent.

In The Mulhouse (Fed. Cas. No. 9910), decided in 1859, the award was as follows: 25 per cent salving dry
deck cotton; 45 per cent salving cotton submerged between decks; 55 per cent salving cotton by diving.

In The John Wesley (Fed. Cas. NO. 7433), decided in 1866, the award was as follows: 15 per cent; on
damaged cotton a slightly higher per cent.

In The Northwester (Fed. Cas. NO. 10333), decided in 1873, the award was as follows: 20 per cent on
cotton dry; 33 1/3 per cent on cotton wet and burnt; 40 per cent on materials; 50 per cent on property
salved by diving.
In Baker vs. Cargo etc. of The Slobodna (35 Fed. Rep., 537), decided in 1887, the award was as follows:
25 per cent on dry cotton; 33 1/3 per cent on wet cotton; 45 per cent on materials.

In the cases in which the full award of 50 per cent was allowed the court usually made the comment:
"services highly meritorious service," "with great labor and difficulty," or similar remarks.

In the salvage operations conducted by the plaintiff, the following property was involved:

First, the steamship Nippon, valued at P250,000.00

Second, copra, net valued, salved 142,657.05

Third, agar-agar, net value, salved 5,635.00

Fourth, general cargo 5,939.68

Fifth, camphor, net value, salved 1,850.00

Sixth, curios, net value, salved 150.00

The plaintiff and the owners of the ship have heretofore, by mutual agreement, settled the question of
the amount of salvage of the ship. The plaintiff received for that part of their services the sum of
(L)15000, or about P145,800.

No appeal was taken from the judgment of the lower court concerning the amount of salvage allowed
by it for the general cargo, the camphor, nor the curios salved.

The only question raised by the appellants is as to the amount of salvage which should be awarded to
the plaintiff-appellants for the copra and the agar-agar. After a careful study of the entire record and
taking into account the amount which the plaintiffs has heretofore received, we have arrived at the
conclusion that in equity and justice the plaintiff-appellants should receive for their services the
following amounts:

(a) 40 per cent of the net value of the wet copra salved.

(b) 25 per cent of the net value of the dry copra salved.

(c) 20 per cent of the net value of the agar-agar salved.

The net value of the wet copra salved amounted to P40,381.94; 40 per cent of that amount would be
P16,152.78.

The net value of the dry copra salved amounted to P102,275.11; 25 per cent of that amount would be
P25,568.77.

In ascertaining the net value of the copra salved, the expenses incurred by the Collector of Customs in
the sale of the copra, amounting to P4,080.01, has been deducted from the total amount of the copra
salved in the proportion of 2.5 to 1. Dividing the expense in that proportion we have deducted from the
amount of the dry copra salved the sum of P2,914.39, and from the amount of the wet copra salved, the
sum of P1,165.62.

The net value of the agar-agar salved amounted to P5,636; 20 per cent of that amount would be P1,127.

In view of all of the foregoing, it is hereby ordered and decreed that the judgment of the lower court be
modified, and that a judgment be entered against the defendant-appellants and in favor of the plaintiff-
appellant, as follows: First, it is hereby ordered and decreed that a judgment be entered against the
defendant, the Oelwerke Teutonia, and in favor of the plaintiff in the sum of P41,721.55. Second, it is
further ordered and decreed that a judgment be entered against the defendant, The New Zealand
Insurance Company (Ltd.), and in favor of the plaintiff, in the sum of P1,127. Third, it is further ordered
and decreed that the amount of the judgment hereinbefore rendered in favor of the plaintiff be paid out
of the money which is now under the control of the Court of First Instance of the city of Manila. And
without any finding as to costs, it is so ordered.

Arellano, C. J., Torres, Johnson, Carson and Trent, JJ.

THIRD DIVISION

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

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

THE COURT OF APPEALS, CHINA BANKING CORPORATION, respondents.

The Chief Legal Counsel (Atty. Salvador A. Luy) for petitioner.

Lim Vigilia Alcala Dumlao & Orencia for private respondent.

SYNOPSIS

When PISC was granted guaranty accommodations by petitioner NIDC, PISC executed chattel mortgages,
including M/V "Asean Liberty," in favor of petitioners NIDC and PNB. Meanwhile, PISC entered into a
Contract Agreement with HongKong United Dockyards, Ltd. for the repair and conversion of M/V "Asean
Liberty," and in lieu thereof, PISC opened a Standby Letter of Credit for US$545,000 with respondent
CBC in favor of Citibank to cover the expenses. Citibank was able to draw the amount of US$242,225 on
the Letter of Credit. For failure of PISC to settle its obligations, when petitioner PNB conducted an
auction sale on the mortgaged vessels, with NIDC, as the highest bidder. CBC filed a complaint-in-
intervention but the same was dismissed. The Court of Appeals, however, held that PNB/NIDC were
liable to CBC for the amount of US$242,225 as preferred maritime lien, to be paid from the proceeds of
the foreclosure sale of the vessel M/V "Asean Liberty." cAIDEa

The issues involved mixed questions of fact and law; thus, the Court of Appeals has jurisdiction. On CBC's
claim, the applicable rule is PD No. 1521, the Ship Mortgage Decree of 1978, which provides that 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. Here, the maritime lien in favor of Hong Kong United
Dockyards, Ltd. constituted on the vessel M/V "Asean Liberty" was acquired by CBC by legal
subrogation. This is because CBC paid as guarantor the loan extended by Citibank to PISC to fulfill PISC's
obligation to Hong Kong United Dockyards, Ltd. 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. Evidently, the amounts
sought to be recovered by CBC are proceeds of the loans used for the repair and conversion of the
vessel M/V "Asean Liberty." The Court also ruled that the claim of CBC is a preferred maritime lien over
the mortgage lien considering that the maritime lien attached on the date of contract of repair of the
vessel which was March 12, 1979, while the mortgage was recorded later on September 25, 1979.

SYLLABUS

1. REMEDIAL LAW; SUPREME COURT; JURISDICTION; INCLUDES ISSUES INVOLVING PURE

QUESTIONS OF LAW. [T]he 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 . . . indirectly
states that cases from the Regional Trial Court raising only questions of law should be taken to the
Supreme Court. . . [Scrutinizing Paragraphs No. 4 (c) and (d) of the said Circular], 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. 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.

2. ID.; COURT OF APPEALS; JURISDICTION; WHERE THE ISSUE INVOLVES ONLY QUESTION OF FACT,
OR BOTH FACT AND LAW. Notwithstanding [the] legal rule, the appeal brought before the Court of
Appeals . . . 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. As such, even if. . . 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. SHacCD

3. COMMERCIAL LAW; MARITIME LAW; PD NO. 1521 (SHIP MORTGAGE DECREE OF 1978);
MARITIME LIEN OF A PERSON FURNISHING REPAIRS, SUPPLIES AND OTHER NECESSARIES TO A VESSEL
ON CREDIT. [In] Presidential Decree No. 1521, otherwise known as the Ship Mortgage Decree of 1978,
Sections 17 and 21 [thereof provides that] 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.

4. ID.; ID.; ID.; RIGHT TO MARITIME LIEN OF ONE WHO PROVIDED CREDIT TO DISCHARGE THE
SAME ACQUIRES THE MARITIME LIEN BY SUBROGATION. The provisions of our Ship Mortgage Decree
of 1978 were patterned quite closely after the U.S. Ship Mortgage Act of 1920. 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." 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." 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." 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, . . . 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." By definition, subrogation is the
transfer of all the rights of the creditor to a third person, who substitutes him in all his rights.
Considering that Citibank paid off the debt of PISC to Hongkong United Dockyards, Ltd. it became the
transferee of all the rights of Hongkong United Dockyards, Ltd. as against PISC, including the maritime
lien over the vessel M/V "Asean Liberty." Private respondent CBC, as guarantor, was itself subrogated to
all the rights of Citibank as against PISC, the latter's debtor. Article 2067 of the New Civil Code provides
that "(t)he guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had
against the debtor." Private respondent, having paid off the debt of PISC to Citibank, was therefore,
subrogated to all the rights Citibank had against its debtor PISC. Considering that Citibank had a
maritime lien over the vessel M/V "Asean Liberty," private respondent was likewise subrogated to this
right when it paid off Citibank under the contract of guarantee. ACcDEa

5. ID.; ID.; ID.; ID.; THAT CREDIT ACTUALLY USED TO PAY DEBTS USED FOR THE VESSEL, REQUIRED.
[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.". . . [R]ecords [however],
are replete with documents that show that the proceeds of the loans [extended by Citibank to PISC and
thereafter paid by CBC] were used for the repair and conversion of the vessel M/V "Asean Liberty."

6. ID.; ID.; ID.; WHEN MARITIME LIEN PREFERRED OVER MORTGAGE LIEN. Petitioners' mortgage
lien arose on September 25, 1979 when the said mortgage was registered with the Philippine Coast
Guard Headquarters. 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. . . 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." [T]he
maritime lien over the vessel M/V "Asean Liberty" arose or was constituted at the time Hongkong
United Drydocks, Ltd. made repairs on the said vessel on credit. As such, as early as March 12, 1979, the
date of the contract for the repair and conversion of M/V "Asean Liberty," a maritime lien had already
attached to the said vessel. When Citibank advanced the amount of US$242,225.00 for the purpose of
paying off PISC's debt to Hongkong United Dockyards, Ltd., it acquired the existing maritime lien over
the vessel. When private respondent honored its contract of guarantee with Citibank on March 30,
1983, it likewise acquired by subrogation the maritime lien that was already existing over the vessel M/V
"Asean Liberty." Thus, when private respondent CBC chose to exercise its right to the maritime lien
during the proceedings in the trial court, it was actually enforcing a privilege that attached to the ship as
early as March 12, 1979. The maritime lien of private respondent CBC thus arose prior in time to the
recording of petitioners' mortgage on September 25, 1979. As such, the said maritime lien has priority
over the said mortgage lien. Pursuant to Section 17 of the Ship Mortgage Decree of 1978, a "preferred
mortgage lien shall have priority over all claims against the vessel" except, among others, "maritime
liens arising prior in time to the recording of the preferred mortgage." ITCHSa

DECISION

GONZAGA-REYES, J p:

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

The facts of the case are as follows: SEIcHa

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

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

b. US$23.60 Million in favor of the Philippine National Bank (hereinafter "PNB" as evidenced by
and subject to the terms and conditions of a Consolidated Amendatory Agreement dated January 25,
1979 to finance the acquisition cost of four (4) additional ocean-going vessels; and
c. US$1.291 Million in favor of PNB as evidenced by and subject to the terms and conditions of
that Second Consolidated Amendatory Agreement dated July 17, 1979 to finance the additional
acquisition cost of one (1) ocean-going vessel. 3

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

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

b. Supplemental Chattel Mortgage dated October 2, 1979 constituted on M/V "Asean

Independence," M/V "Asean Mission," M/V "Asean Knowledge," and M/V "Asean Objectives" and
recorded with the Philippine Coast Guard Headquarters on February 13, 1980; and cCAaHD

c. Supplemental Chattel Mortgage constituted on M/V "Asean Greatness" and recorded with the
Philippine Coast Guard Headquarters on February 3, 1981. 4

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

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

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

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

Upon failure of PISC to fulfill its obligations under the said promissory note, Citibank sent to private
respondent CBC a letter dated March 25, 1983 drawing on Letter of Credit No. 79/4174. In this letter,
Citibank certified that the draft attached thereto for US$242,225.00 represented the principal balance
due to Citibank as of March 17, 1983 under the promissory note executed by PISC, the proceeds of
which were used for the repair and conversion of M/V Asean Liberty. Thus, on March 30, 1983, CBC
instructed its correspondent Irving Trust Co., by cable, to pay to Citibank the amount of US$242,225.00.
On the same date, Irving Trust Co. advised private respondent CBC by mail that the amount of
US$242,225.00 had been debited against CBC's Account No. 8033278269 and remitted to Citibank. 8
On May 10, 1983, for failure of PISC to settle its obligations in the amount of US$64,789,470.96,
petitioner PNB conducted, thru the Sheriff's Office, an auction sale of the mortgaged vessels, except for
the vessel M/V "Asean Objective." Petitioner NIDC emerged as the highest bidder in these auctions. 9

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

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

"Records show that on May 27, 1983, PISC (Philippine International Shipping Corporation) filed suit
against National Investment and Development Corporation (NIDC, for short) and Philippine National
Bank (PNB, for short) for annulment of foreclosure of mortgage and auction sale with damages vis-a-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. STcADa

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

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

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

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

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

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

'A. NATURE OF THE CASE

Claimant-intervenor Lloyd's Register of Shipping seeks recovery as unpaid creditor of HK$65,930., UK

Pounds 10,363.45 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. aHTcDA

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

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

B. STIPULATIONS AND ADMISSIONS.

Plaintiffs, PNB-NIDC and intervenor-claimant Lloyd's Register of Shipping stipulate and admit that the
totality of its claims as fully supported by documentation already verified by the parties are in the sums
of HK$65,930.00, UKC10,363.45 and P9,653.00.

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

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 PNB's being the mortgagee of the assets from which recovery
is sought.

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

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

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

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 Appellee's Brief before the Court of
Appeals the lack of jurisdiction of the appellate court to entertain and pass upon the appeal interposed
by CBC on the ground that the issues raised therein were purely legal; and that the appeal of CBC should
have been lodged with the Supreme Court by petition for review on certiorari. 12

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

"WHEREFORE, insofar as the appellant CBC is concerned, the appealed Order is hereby SET ASIDE and
judgment is rendered:

(a) Directing the appellee Philippine National Bank/National Investment and Development
Corporation to pay the appellant China Banking Corporation from the proceeds of the foreclosure sale of
M/V Asean Liberty the amount of US$242,225.00 or its Philippine Peso Equivalent at the time of
payment, with interest thereon at the legal rate from November 7, 1984, the date of filing of CBC's
complaint-in-intervention, until fully paid; and ATcaEH
(b) Ordering the appellee Philippine International Shipping Corporation to pay the same CBC the
amounts of US$648,002.54 and US$2.7 Million plus stipulated interests, arrangement fees, swap
premiums, expenses, losses, taxes and penalties,

xxx xxx xxx

SO ORDERED." 13

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

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

I.

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

II.

WHETHER OR NOT PRIVATE RESPONDENT CBC'S CLAIM FOR US$242,225.00 AS EVIDENCED BY ITS
IRREVOCABLE LETTER OF CREDIT NO. 79/4174 OF SEPTEMBER 12, 1979 IS IN THE NATURE OF A
MARITIME LIEN UNDER THE PROVISIONS OF P.D. NO. 1521; AND IF SO, WHETHER OR NOT SAID
MARITIME LIEN IS PREFERRED OVER THE MORTGAGE LIEN OF PETITIONER PNB/NIDC ON THE
FORECLOSED VESSEL M/V "ASEAN LIBERTY."

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

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

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

xxx xxx xxx

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

(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." HcISTE

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

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

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

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

"A question of fact has been distinguished from a question of law in this wise:

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

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

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

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

Verily, the issues raised by private respondent in the appellate court were cognizable by the said court,
the issues being mixed questions of fact and law. Respondent court was therefore acting within its
jurisdiction when it promulgated its questioned decision.

The next issue brought up by petitioners is whether or not private respondent CBC's claim for
US$242,225.00 is in the nature of a maritime lien. It is the contention of petitioners that "(t)he Court of
Appeals gravely erred in law in holding that private respondent CBC's claim under its Standby Letter of
Credit No. 79/4174 is a maritime lien, and that said maritime lien is preferred over the mortgage lien of
petitioners PNB/NIDC on the foreclosed vessel M/V Asean Liberty." 19

The applicable law on the matter is Presidential Decree No. 1521, otherwise known as the Ship
Mortgage Decree of 1978. Sections 17 and 21 of the said Presidential Decree provides as follows:
"Sec. 17. Preferred Maritime Liens, Priorities, Other Liens. (a) Upon the sale of any mortgaged
vessel in any extrajudicial sale or by order of a district court of the Philippines in any suit in rem in
admiralty for the enforcement of a preferred mortgage lien thereon, all pre-existing claims on the
vessel, including any possessory common-law lien of which a lienor is deprived under the provisions of
Section 16 of this Decree, shall be held terminated and shall thereafter attach, in like amount and in
accordance with the priorities established herein to the proceeds of the sale. The preferred mortgage
lien shall have priority over all claims against the vessel, except the following claims in the order stated:
(1) expenses and fees allowed and costs taxed by the court and taxes due to the government; (2) crew's
wages; (3) general average; (4) salvage; including contract salvage; (5) maritime liens arising prior in
time to the recording of the preferred mortgage; and (6) damages arising out of tort; and (7) preferred
mortgage registered prior in time. CDHAcI

(b) If the proceeds of the sale should not be sufficient to pay all creditors included in one number or
grade, the residue shall be divided among them pro rata. All credits not paid, whether fully or partially
shall subsist as ordinary credits enforceable by personal action against the debtor. The record of judicial
sale or sale by public auction shall be recorded in the Record of Transfers & Encumbrances of Vessels in
the port of documentation."

"Sec. 21. Maritime Lien for Necessaries; persons entitled to such lien. Any person furnishing
repairs, supplies, towage, use of dry dock or maritime railway, or other necessaries to any vessel,
whether foreign or domestic, upon the order of the owner, shall have a maritime lien on the vessel,
which may be enforced by suit in rem, and it shall be necessary to allege or prove that credit was given
to the vessel."

Under these provisions, any person furnishing repairs, supplies, or other necessaries to a vessel on
credit will have a maritime lien on the said vessel. Such maritime lien, if it arose prior to the recording of
a preferred mortgage lien, shall have priority over the said mortgage lien.

In the instant case, it was Hongkong United Dockyards, Ltd. which originally possessed a maritime lien
over the vessel M/V "Asean Liberty" by virtue of its repair of the said vessel on credit. Under the
Contract Agreement dated March 12, 1979 between Hongkong United Dockyards, Ltd. and PISC, the
former, as contractor, obligated itself to repair and convert the vessel M/V "Asean Liberty," which was
owned by PISC. Section 7 of the said Agreement provides as follows:

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

b) Payment will be:

(1) Before departure of vessel from Contractor's yard: 20% of contract price;

(2) 60 days from departure of vessel from Contractors yard: 40% of contract price;

(3) 90 days from departure of vessel from Contractors yard: 40% of contract price." 20
The foregoing provision of the contract agreement indubitably shows that credit was given to the vessel
M/V "Asean Liberty" by Hongkong United Dockyards, Ltd. and as a result, a maritime lien in favor of
Hongkong United Dockyards, Ltd. was constituted on the said vessel by virtue of Section 21 of the Ship
Mortgage Decree of 1978.

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

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

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

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

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

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

(f) On March 25, 1983, Citibank sent a letter to private respondent CBC calling and drawing on
CBC's Letter of Credit No. 79/4174 and certifying that the draft attached thereto for US$242,225.00
represents the principal balance due to Citibank as of March 17, 1983 under PISC's Promissory Note of
September 17, 1979. 26 This March 25, 1983 letter likewise indicated that the loan due from PISC was
used to finance partially the conversion cost of the vessel M/V "Asian Liberty"; CAScIH
(g) On March 30, 1983, private respondent CBC instructed by cable its correspondent, Irving Trust
Co., to pay Citibank US$242,225.00. On the same date, Irving Trust Co., advised private respondent CBC
by mail that the sum of US$242,225.00 was debited against CBC's Account No. 8033278269 and
remitted to the Citibank Foreign Currency Deposit Unit, Makati 27 ;

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

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

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

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

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

xxx xxx xxx

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

xxx xxx xxx.'

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

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

There is no merit in the contentions of petitioners.

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

As held by the public respondent Court of Appeals, those who provide credit to a master of a vessel for
the purpose of discharging a maritime lien also acquire a lien over the said vessel. Under American
jurisprudence, "(f)urnishing money to a master in good faith to obtain repairs or supplies or to remove
liens, in order to forward the voyage of the vessel, raises a lien just as though the things (for which)
money was obtained to pay for had been furnished by the lender." 32 Likewise, "(a)dvances to discharge
maritime liens create a lien on the vessel, and one advancing money to discharge a valid lien gets a lien
of equal dignity with the one discharged." 33 There is no reason why these doctrines cannot be given
persuasive application in the instant case considering that they do not violate or contravene any of our
existing laws. Moreover, as pointed out by the appellate court, these doctrines are in accord with our
provisions on subrogation particularly Art. 1302, paragraph 2 of the New Civil Code which provides that
there is legal subrogation "when a third person, not interested in the fulfillment in the obligation, pays
with the express or tacit approval of the debtor."
Under these doctrines, a person who extends credit for the purpose of discharging a maritime lien is not
entitled to the said lien "where the funds were not furnished to the ship on the order of the master and
there was no evidence that the money was actually used to pay debts secured by the lien." 34 As
applied in the instant case, it becomes necessary to prove that the credit advanced by Citibank to PISC
was actually utilized for the repair and conversion of the vessel M/V "Asean Liberty." Otherwise,
Citibank could not have acquired the maritime lien of Hongkong United Dockyards, Ltd. over the vessel
M/V "Asean Liberty."

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

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

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

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

Private respondent CBC, as guarantor, was itself subrogated to all the rights of Citibank as against PISC,
the latter's debtor. Article 2067 of the New Civil Code provides that "(t)he guarantor who pays is
subrogated by virtue thereof to all the rights which the creditor had against the debtor." Private
respondent, having paid off the debt of PISC to Citibank, was therefore, subrogated to all the rights
Citibank had against its debtor PISC. Considering that Citibank had a maritime lien over the vessel M/V
"Asean Liberty," private respondent was likewise subrogated to this right when it paid off Citibank under
the contract of guarantee.

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

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

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

There is no merit in this contention.

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

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

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

WHEREFORE, 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. HcaDTE

SO ORDERED.

Melo, Vitug, Panganiban, and Purisima, JJ., concur.

Footnotes

1. Annex "A" of Petition; Rollo, pp. 30-53. Per Justice Salvador J. Valdez, Jr, with Justices Jaime M.
Lantin and Corona Ibay-Somera, concurring.

2. Penned by Judge Salvador S. Tensuan, C.A. Rollo, pp. 26-32.

3. Petition, pp. 3-4; Rollo, pp. 10-11.

4. Petition, p. 4; Rollo, p. 11.

5. Memorandum for Private Respondent, p. 2; Rollo, p. 139.

6. Ibid.

7. Memorandum for Private Respondent, pp. 2-3; Rollo, pp. 139-140.

8. Rollo, p. 140.

9. Petition, p. 4; Rollo, p. 11.

10. Docketed as Civil Case No. 4068.

11. Rollo, pp. 32-35.

12. Petition, p. 7; Rollo, p. 14.

13. Rollo, pp. 52-53.

14. UDK-9748, 1 March 1990.

15. Subject: Guidelines to be Observed in Appeals to the Court of Appeals and to the Supreme
Court, dated March 9, 1990, based on the Resolution of the Court En Banc in UDK-9748 (Anacleto
Murillo vs. Rodolfo Consul), March 1, 1990.

16. Roman Catholic Archbishop of Manila vs. Court of Appeals, 258 SCRA 186.

17. Please also see Section 17 (1) of the Judiciary Act of 1948.
18. Rollo, p. 45.

19. Petition, p. 12; Rollo, p. 19.

20. China Banking Corporation's Record on Appeal, p. 187.

21. Ibid., pp. 184-188.

22. Ibid., pp. 189-191.

23. Ibid., pp. 192-193.

24. Ibid., p. 194.

25. Ibid., pp. 195-196.

26. Ibid., pp. 197-200.

27. Ibid., p. 201.

28. Ibid., p. 194.

29. Petition, p. 17; Rollo, p. 24.

30. Hernandez, Eduardo F. and Penasales, Antero A., Philippine Admiralty and Maritime Law, 1987
Edition, p. 133.

31. 70 Am. Jur. 2nd 552, p. 800.

32. 70 Am. Jur. 2nd 561, p. 807.

33. Ibid.

34. Ibid.

35. K.K. Shell Sekiyu Osaka Hatsubaisho vs. Court of Appeals, 188 SCRA 145.

36. Tan Chun Suy vs. Court of Appeals, 212 SCRA 713.

37. Chemphil Export and Import Corporation vs. Court of Appeals, 251 SCRA 257.

38. Petition, p. 4; Rollo, p. 11.

39. Petition, p. 19; Rollo, p. 26.

40. Agbayani, Aguedo F., Commentaries and Jurisprudence on the Commercial Laws of the
Philippines, 1993 ed., Volume IV, pp. 699-700 citing 70 Am Jur 2nd, 472.