Aboitiz Shipping Corporation

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ABOITIZ SHIPPING CORPORATION, petitioner,vs.GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION,LTD., respondent.Sycip, Salazar, Hernandez & Gamaitan Law Office for petitioner.Napoleon Rama collaborating counsel for petitioner.Dollete, Blanco, Ejercito & Associates for private respondent.MELO,J.:

This refers to a petition for review which seeks to annul and set aside thedecision of the Court of Appeals dated June 21, 1991, in CA G.R. SP No.24918. The appellate court dismissed the petition for certiorari filed byherein petitioner, Aboitiz Shipping Corporation, questioning the Order ofApril 30, 1991 issued by the Regional Trial Court of the National CapitalJudicial Region (Manila, Branch IV) in its Civil Case No. 144425 grantingprivate respondent's prayer for execution for the full amount of thejudgment award. The trial court in so doing swept aside petitioner'sopposition which was grounded on the real and hypothecary nature ofpetitioner's liability as ship owner. The application of this establishedprinciple of maritime law would necessarily result in a probable reductionof the amount to be recovered by private respondent, since it would haveto share with a number of other parties similarly situated in the insuranceproceeds on the vessel that sank.The basic facts are not disputed.Petitioner is a corporation organized and operating under Philippine lawsand engaged in the business of maritime trade as a carrier. As such, itowned and operated the ill-fated "M/V P. ABOITIZ," a common carrier whichsank on a voyage from Hongkong to the Philippines on October 31, 1980.Private respondent General Accident Fire and Life Assurance Corporation,Ltd. (GAFLAC), on the other hand, is a foreign insurance company pursuingits remedies as a subrogee of several cargo consignees whose respectivecargo sank with the said vessel and for which it has priorly paid.The incident of said vessel's sinking gave rise to the filing of suits forrecovery of lost cargo either by the shippers, their successor-in-interest, orthe cargo insurers like GAFLAC as subrogees. The sinking was initiallyinvestigated by the Board of Marine Inquiry (BMI Case No. 466, December

26, 1984), which found that such sinking was due toforce majeure and thatsubject vessel, at the time of the sinking was seaworthy. Thisadministrative finding notwithstanding, the trial court in said Civil Case No.144425 found against the carrier on the basis that the loss subject mattertherein did not occur as a result of

force majeure. Thus, in said case,plaintiff GAFLAC was allowed to prove, and. was later awarded, its claim.This decision in favor of GAFLAC was elevated all the way up to this Courtin G.R. No. 89757 (Aboitiz v. Court of Appeals, 188 SCRA 387 [1990]), withAboitiz, like its ill-fated vessel, encountering rough sailing. The attemptedexecution of the judgment award in said case in the amount ofP1,072,611.20 plus legal interest has given rise to the instant petition.On the other hand, other cases have resulted in findings upholding theconclusion of the BMI that the vessel was seaworthy at the time of the

sinking, and that such sinking was due to force majeure. One such rulingwas likewise elevated to this Court in G.R. No. 100373, Country Bankers

Insurance Corporation v. Court of Appeals, et al., August 28, 1991 and wassustained. Part of the task resting upon this Court, therefore, is to reconcilethe resulting apparent contrary findings in cases originating out of a singleset of facts.It is in this factual milieu that the instant petition seeks a pronouncementas to the applicability of the doctrine of limited liability on the totality ofthe claims vis a vis the losses brought about by the sinking of the vesselM/V P. ABOITIZ, as based on the real and hypothecary nature of maritimelaw. This is an issue which begs to be resolved considering that a number

of suits alleged in the petition number about 110 (p. 10 and pp. 175 to183, Rollo) still pend and whose resolution shall well-nigh result in moreconfusion than presently attends the instant case.In support of the instant petition, the following arguments are submitted bythe petitioner:

1. The Limited Liability Rule warrants immediate stay ofexecution of judgment to prevent impairment of othercreditors' shares;2. The finding of unseaworthiness of a vessel is notnecessarily attributable to the shipowner; and3 The principle of "Law of the Case" is not applicable to thepresent petition. (pp. 2-26, Rollo.)

On the other hand, private respondent opposes the foregoing contentions,arguing that:

1. There is no limited liability to speak of or applicable realand hypothecary rule under Article 587, 590, and 837 ofthe Code of Commerce in the face of the facts found by thelower court (Civil Case No. 144425), upheld by theAppellate Court (CA G.R. No. 10609), and affirmed intoto by the Supreme Court in G.R. No. 89757 which citedG.R. No. 88159 as the Law of the Case; and2. Under the doctrine of the Law of the Case, casesinvolving the same incident, parties similarly situated andthe same issues litigated should be decided in conformitytherewith following the maximstare decisis et non quietamovere. (pp. 225 to 279, Rollo.)

Before proceeding to the main bone of contention, it is important to

determine first whether or not the Resolution of this Court in G.R. No.88159,Aboitiz Shipping, Corporation vs. The Honorable Court of Appealsand Allied Guaranty Insurance Company, Inc., dated November 13, 1989effectively bars and precludes the instant petition as argued by respondentGAFLAC.An examination of the November 13, 1989 Resolution in G.R. No. 88159(pp. 280 to 282, Rollo) shows that the same settles two principal matters,first of which is that the doctrine of primary administrative jurisdiction isnot applicable therein; and second is that a limitation of liability in saidcase would render inefficacious the extraordinary diligence required by lawof common carriers.It should be pointed out, however, that the limited liability discussed insaid case is not the same one now in issue at bar, but an altogether

different aspect. The limited liability settled in G.R. No. 88159 is that whichattaches to cargo by virtue of stipulations in the Bill of Lading, popularly

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known as package limitation clauses, which in that case was contained inSection 8 of the Bill of Lading and which limited the carrier's liability toUS$500.00 for the cargo whose value was therein sought to be recovered.Said resolution did not tackle the matter of the Limited Liability Rulearising out of the real and hypothecary nature of maritime law, which wasnot raised therein, and which is the principal bone of contention in thiscase. While the matters threshed out in G.R. No. 88159, particularly thosedealing with the issues on primary administrative jurisdiction and thepackage liability limitation provided in the Bill of Lading are now settled

and should no longer be touched, the instant case raises a completelydifferent issue. It appears, therefore, that the resolution in G.R. 88159adverted to has no bearing other than factual to the instant case.This brings us to the primary question herein which is whether or notrespondent court erred in granting execution of the full judgment award inCivil Case No. 14425 (G.R. No. 89757), thus effectively denying theapplication of the limited liability enunciated under the appropriate articlesof the Code of Commerce. The articles may be ancient, but they aretimeless and have remained to be good law. Collaterally, determination ofthe question of whether execution of judgments which have become finaland executory may be stayed is also an issue.We shall tackle the latter issue first. This Court has always been consistentin its stand that the very purpose for its existence is to see to theaccomplishment of the ends of justice. Consistent with this view, a numberof decisions have originated herefrom, the tenor of which is that noprocedural consideration is sacrosanct if such shall result in the subvertingof substantial justice. The right to an execution after finality of a decision iscertainly no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355[1985]), this Court ruled that:

. . . It is a truism that every court has the power "to control,in the furtherance of justice, the conduct of its ministerialofficers, and of all other persons in any manner connectedwith a case before it, in every manner appertainingthereto. It has also been said that:

. . . every court having jurisdiction torender a particular judgment has inherentpower to enforce it, and to exercise

equitable control over such enforcement.The court has authority to inquire whetherits judgment has been executed, and willremove obstructions to the enforcementthereof. Such authority extends not only tosuch orders and such writs as may benecessary to carry out the judgment intoeffect and render it binding and operative,but also to such orders and such writs asmay be necessary to prevent an improperenforcement of the judgment. If ajudgment is sought to be perverted andmade a medium of consummating a wrong

the court on proper application can preventit. (at p. 359)

and again in the case of

Lipana v. Development Bank of Rizal (154 SCRA257 [1987]), this Court found that:

The rule that once a decision becomes final and executory,it is the ministerial duty of the court to order its execution,admits of certain exceptions as in cases of special andexceptional nature where it becomes the imperative in thehigher interest of justice to direct the suspension of itsexecution (Vecine v. Geronimo, 59 OG 579); whenever it isnecessary to accomplish the aims of justice (Pascual v Tan,

85 Phil. 164); or when certain facts and circumstancestranspired after the judgment became final which wouldrender the execution of the judgment unjust (Cabrias v.Adil, 135 SCRA 354). (at p. 201)

We now come to the determination of the principal issue as to whether theLimited Liability Rule arising out of the real and hypothecary nature ofmaritime law should apply in this and related cases. We rule in theaffirmative.In deciding the instant case below, the Court of Appeals took refuge in thisCourt's decision in G.R. No. 89757 upholding private respondent's claims inthat particular case, which the Court of Appeals took to mean that thisCourt has "considered, passed upon and resolved Aboitiz's contention thatall claims for the losses should first be determined before GAFLAC'sjudgment may be satisfied," and that such ruling "in effect necessarilynegated the application of the limited liability principle" (p. 175, Rollo).Such conclusion is not accurate. The decision in G.R. No. 89757 consideredonly the circumstances peculiar to that particular case, and was not meantto traverse the larger picture herein brought to fore, the circumstances ofwhich heretofore were not relevant. We must stress that the matter of theLimited Liability Rule as discussed was never in issue in all prior cases,including those before the RTCs and the Court of Appeals. As discussedearlier, the "limited liability" in issue before the trial courts referred to thepackage limitation clauses in the bills of lading and not the limited liabilitydoctrine arising from the real and hypothecary nature of maritime trade.The latter rule was never made a matter of defense in any of the cases aquo, as properly it could not have been made so since it was not relevantin said cases. The only time it could come into play is when any of the

cases involving the mishap were to be executed, as in this case. Then, andonly then, could the matter have been raised, as it has now been broughtbefore the Court.The real and hypothecary nature of maritime law simply means that theliability of the carrier in connection with losses related to maritimecontracts is confined to the vessel, which is hypothecated for suchobligations or which stands as the guaranty for their settlement. It has itsorigin by reason of the conditions and risks attending maritime trade in itsearliest years when such trade was replete with innumerable and unknownhazards since vessels had to go through largely uncharted waters to plytheir trade. It was designed to offset such adverse conditions and toencourage people and entities to venture into maritime commerce despitethe risks and the prohibitive cost of shipbuilding. Thus, the liability of the

vessel owner and agent arising from the operation of such vessel wereconfined to the vessel itself, its equipment, freight, and insurance, if any,

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which limitation served to induce capitalists into effectively wagering theirresources against the consideration of the large profits attainable in thetrade.It might be noteworthy to add in passing that despite the modernization ofthe shipping industry and the development of high-technology safetydevices designed to reduce the risks therein, the limitation has not onlypersisted, but is even practically absolute in well-developed maritimecountries such as the United States and England where it covers almost allmaritime casualties. Philippine maritime law is of Anglo-American

extraction, and is governed by adherence to both international maritimeconventions and generally accepted practices relative to maritime tradeand travel. This is highlighted by the following excerpts on the limitedliability of vessel owners and/or agents;

Sec. 183. The liability of the owner of any vessel, whetherAmerican or foreign, for any embezzlement, loss, ordestruction by any person of any person or any property,goods, or merchandise shipped or put on board suchvessel, or for any loss, damage, or forfeiture, done,occasioned, or incurred, without the privity or knowledge ofsuch owner or owners shall not exceed the amount orvalue of the interest of such owner in such vessel, and herfreight then pending. (Section 183 of the US FederalLimitation of Liability Act).

and1. The owner of a sea-going ship may limit his liability inaccordance with Article 3 of this Convention in respect ofclaims arising, from any of the following occurrences,unless the occurrence giving rise to the claim resulted fromthe actual fault or privity of the owner;(a) loss of life of, or personal injury to, any person beingcarried in the ship, and loss of, or damage to, any propertyon board the ship.(b) loss of life of, or personal injury to, any other person,whether on land or on water, loss of or damage to anyother property or infringement of any rights caused by theact, neglect or default the owner is responsible for, or any

person not on board the ship for whose act, neglect ordefault the owner is responsible: Provided, however, that inregard to the act, neglect or default of this last class ofperson, the owner shall only be entitled to limit his liabilitywhen the act, neglect or default is one which occurs in thenavigation or the management of the ship or in theloading, carriage or discharge of its cargo or in theembarkation, carriage or disembarkation of its passengers.(c) any obligation or liability imposed by any law relating tothe removal of wreck and arising from or in connectionwith the raising, removal or destruction of any ship whichis sunk, stranded or abandoned (including anything whichmay be on board such ship) and any obligation or liability

arising out of damage caused to harbor works, basins and

navigable waterways. (Section 1, Article I of the BrusselsInternational Convention of 1957)

In this jurisdiction, on the other hand, its application has been well-nighconstricted by the very statute from which it originates. The LimitedLiability Rule in the Philippines is taken up in Book III of the Code ofCommerce, particularly in Articles 587, 590, and 837, hereunder quoted intoto:

Art. 587. The ship agent shall also be civilly liable for theindemnities in favor of third persons which may arise from

the conduct of the captain in the care of the goods whichhe loaded on the vessel; but he may exempt himselftherefrom by abandoning the vessel with all her equipmentand the freight it may have earned during the voyage.Art. 590. The co-owners of a vessel shall be civilly liable inthe proportion of their interests in the common fund for theresults of the acts of the captain referred to in Art. 587.Each co-owner may exempt himself from this liability bythe abandonment, before a notary, of the part of the vesselbelonging to him.Art. 837. The civil liability incurred by shipowners in thecase prescribed in this section (on collisions), shall beunderstood as limited to the value of the vessel with all itsappurtenances and freightage served during the voyage.(Emphasis supplied)

Taken together with related articles, the foregoing cover only liability forinjuries to third parties (Art. 587), acts of the captain (Art. 590) andcollisions (Art. 837).In view of the foregoing, this Court shall not take the application of suchlimited liability rule, which is a matter of near absolute application in otherjurisdictions, so lightly as to merely "imply" its inapplicability, because ascould be seen, the reasons for its being are still apparently much inexistence and highly regarded.We now come to its applicability in the instant case. In the few instanceswhen the matter was considered by this Court, we have been consistent inthis jurisdiction in holding that the onlytime the Limited Liability Rule doesnot applyis when there is an actual finding of negligence on the part of the

vessel owner or agent (Yango v. Laserna, 73 Phil. 330 [1941]; ManilaSteamship Co., Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs of Amparodelos Santos v. Court of Appeals, 186 SCRA 649 [1967]). The pivotalquestion, thus, is whether there is a finding of such negligence on the partof the owner in the instant case.A careful reading of the decision rendered by the trial court in Civil CaseNo. 144425 (pp. 27-33, Rollo) as well as the entirety of the records in theinstant case will show that there has been no actual finding of negligenceon the part of petitioner. In its Decision, the trial court merely held that:

. . . Considering the foregoing reasons, the Court holds thatthe vessel M/V "Aboitiz" and its cargo were not lost due tofortuitous event or force majeure." (p. 32, Rollo)

The same is true of the decision of this Court in G.R. No. 89757 (pp. 71-

86, Rollo) affirming the decision of the Court of Appeals in CA-G.R. CV No.10609 (pp. 34-50, Rollo) since both decisions did not make any new and

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additional finding of fact. Both merely affirmed the factual findings of thetrial court, adding that the cause of the sinking of the vessel was becauseof unseaworthiness due to the failure of the crew and the master toexercise extraordinary diligence. Indeed, there appears to have been noevidence presented sufficient to form a conclusion that petitionershipowner itself was negligent, and no tribunal, including this Court willadd or subtract to such evidence to justify a conclusion to the contrary.The qualified nature of the meaning of "unseaworthiness," under thepeculiar circumstances of this case is underscored by the fact that in

the Country Banker's case, supra, arising from the same sinking, the Courtsustained the decision of the Court of Appeals that the sinking of the M/V P.Aboitiz was due to force majeure.On this point, it should be stressed that unseaworthiness is not a fault thatcan be laid squarely on petitioner's lap, absent a factual basis for such aconclusion. The unseaworthiness found in some cases where the same hasbeen ruled to exist is directly attributable to the vessel's crew and captain,more so on the part of the latter since Article 612 of the Code ofCommerce provides that among the inherent duties of a captain is toexamine a vessel before sailing and to comply with the laws of navigation.Such a construction would also put matters to rest relative to the decisionof the Board of Marine Inquiry. While the conclusion therein exoneratingthe captain and crew of the vessel was not sustained for lack of basis, thefinding therein contained to the effect that the vessel was seaworthydeserves merit. Despite appearances, it is not totally incompatible with thefindings of the trial court and the Court of Appeals, whose finding of"unseaworthiness" clearly did not pertain to the structural condition of thevessel which is the basis of the BMI's findings, but to the condition it was inat the time of the sinking, which condition was a result of the acts of thecaptain and the crew.The rights of a vessel owner or agent under the Limited Liability Rule areakin to those of the rights of shareholders to limited liability under ourcorporation law. Both are privileges granted by statute, and while notabsolute, must be swept aside only in the established existence of themost compelling of reasons. In the absence of such reasons, this Courtchooses to exercise prudence and shall not sweep such rights aside onmere whim or surmise, for even in the existence of cause to do so, such

incursion is definitely punitive in nature and must never be taken lightly.More to the point, the rights of parties to claim against an agent or ownerof a vessel may be compared to those of creditors against an insolventcorporation whose assets are not enough to satisfy the totality of claims asagainst it. While each individual creditor may, and in fact shall, be allowedto prove the actual amounts of their respective claims, this does not meanthat they shall all be allowed to recover fully thus favoring those who filedand proved their claims sooner to the prejudice of those who come later. Insuch an instance, such creditors too would not also be able to gain accessto the assets of the individual shareholders, but must limit their recoveryto what is left in the name of the corporation. Thus, in the case ofLipana v.Development Bank of Rizal earlier cited, We held that:

In the instant case, the stay of execution of judgment is

warranted by the fact that the respondent bank was placedunder receivership. To execute the judgment would unduly

deplete the assets of respondent bank to the obviousprejudice of other depositors and creditors, since, as aptlystated in Central Bank v. Morfe (63 SCRA 114), after theMonetary Board has declared that a bank is insolvent andhas ordered it to cease operations, the Board becomes thetrustee of its assets for the equal benefit of all creditors,and after its insolvency, one cannot obtain an advantageor preference over another by an attachment, execution orotherwise. (at p. 261).

In both insolvency of a corporation and the sinking of a vessel, theclaimants or creditors are limited in their recovery to the remaining valueof accessible assets. In the case of an insolvent corporation, these are theresidual assets of the corporation left over from its operations. In the caseof a lost vessel, these are the insurance proceeds and pending freightagefor the particular voyage.In the instant case, there is, therefore, a need to collate all claimspreparatory to their satisfaction from the insurance proceeds on the vesselM/V P. Aboitiz and its pending freightage at the time of its loss. No claimantcan be given precedence over the others by the simple expedience ofhaving filed or completed its action earlier than the rest. Thus, execution ofjudgment in earlier completed cases, even those already final andexecutory, must be stayed pending completion of all cases occasioned bythe subject sinking. Then and only then can all such claims besimultaneously settled, either completely or pro-rata should the insuranceproceeds and freightage be not enough to satisfy all claims.Finally, the Court notes that petitioner has provided this Court with a list ofall pending cases (pp. 175 to 183,Rollo), together with the correspondingclaims and the pro-rated share of each. We likewise note that some ofthese cases are still with the Court of Appeals, and some still with the trialcourts and which probably are still undergoing trial. It would not, therefore,be entirely correct to preclude the trial courts from making their ownfindings of fact in those cases and deciding the same by allotting sharesfor these claims, some of which, after all, might not prevail, depending onthe evidence presented in each. We, therefore, rule that the pro-ratedshare of each claim can only be found after all the cases shall have beendecided.

In fairness to the claimants, and as a matter of equity, the total proceedsof the insurance and pending freightage should now be deposited in trust.Moreover, petitioner should institute the necessary limitation anddistribution action before the proper admiralty court within 15 days fromthe finality of this decision, and thereafter deposit with it the proceedsfrom the insurance company and pending freightage in order to safeguardthe same pending final resolution of all incidents, for final pro-rating andsettlement thereof.ACCORDINGLY, the petition is hereby GRANTED, and the Orders of theRegional Trial Court of Manila, Branch IV dated April 30, 1991 and theCourt of Appeals dated June 21, 1991 are hereby set aside. The trial courtis hereby directed to desist from proceeding with the execution of thejudgment rendered in Civil Case No. 144425 pending determination of the

totality of claims recoverable from the petitioner as the owner of the M/V P.Aboitiz. Petitioner is directed to institute the necessary action and to

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deposit the proceeds of the insurance of subject vessel as above-describedwithin fifteen (15) days from finality of this decision. The temporaryrestraining order issued in this case dated August 7, 1991 is hereby madepermanent.SO ORDERED.CHUA YEK HONG, petitioner,vs.INTERMEDIATE APPELLATE COURT, MARIANO GUNO, andDOMINADOR OLIT, respondents.

Francisco D. Estrada for petitioner.Purita Hontanosas-Cortes for private respondents.MELENCIO-HERRERA,J.:In this Petition for Review on certiorari petitioner seeks to set aside theDecision of respondent Appellate Court in AC G.R. No. 01375 entitled"Chua Yek Hong vs. Mariano Guno, et al.," promulgated on 3 April 1986,reversing the Trial Court and relieving private respondents (defendantsbelow) of any liability for damages for loss of cargo.The basic facts are not disputed:Petitioner is a duly l icensed copra dealer based at Puerta Galera, OrientalMindoro, while private respondents are the owners of the vessel, "M/VLuzviminda I," a common carrier engaged in coastwise trade from thedifferent ports of Oriental Mindoro to the Port of Manila.In October 1977, petitioner loaded 1,000 sacks of copra, valued atP101,227.40, on board the vessel "M/V Luzviminda I" for shipment fromPuerta Galera, Oriental Mindoro, to Manila. Said cargo, however, did notreach Manila because somewhere between Cape Santiago and Calatagan,Batangas, the vessel capsized and sank with all its cargo.On 30 March 1979, petitioner instituted before the then Court of FirstInstance of Oriental Mindoro, a Complaint for damages based on breach ofcontract of carriage against private respondents (Civil Case No. R-3205).In their Answer, private respondents averred that even assuming that thealleged cargo was truly loaded aboard their vessel, their liability had beenextinguished by reason of the total loss of said vessel.On 17 May 1983, the Trial Court rendered its Decision, the dispositiveportion of which follows:

WHEREFORE, in view of the foregoing considerations, thecourt believes and so holds that the preponderance ofevidence militates in favor of the plaintiff and against thedefendants by ordering the latter, jointly and severally, topay the plaintiff the sum of P101,227.40 representing thevalue of the cargo belonging to the plaintiff which was lostwhile in the custody of the defendants; P65,550.00representing miscellaneous expenses of plaintiff on saidlost cargo; attorney's fees in the amount of P5,000.00, andto pay the costs of suit. (p. 30, Rollo).

On appeal, respondent Appellate Court ruled to the contrary when itapplied Article 587 of the Code of Commerce and the doctrine in Yangcovs. Lasema (73 Phil. 330 [1941]) and held that private respondents'

liability, as ship owners, for the loss of the cargo is merely co-extensive

with their interest in the vessel such that a total loss thereof results in itsextinction. The decretal portion of that Decision 1 reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, thedecision appealed from is hereby REVERSED, and anotherone entered dismissing the complaint against defendants-appellants and absolving them from any and all liabilitiesarising from the loss of 1,000 sacks of copra belonging toplaintiff-appellee. Costs against appellee.(p. 19, Rollo).

Unsuccessful in his Motion for Reconsideration of the aforesaid Decision,petitioner has availed of the present recourse.The basic issue for resolution is whether or not respondent Appellate Courterred in applying the doctrine of limited liability under Article 587 of theCode of Commerce as expounded in Yangco vs. Laserna, supra.Article 587 of the Code of Commerce provides:

Art. 587. The ship agent shall also be civilly liable for theindemnities in favor of third persons which may arise fromthe conduct of the captain in the care of the goods whichhe loaded on the vessel; but he may exempt himselftherefrom by abandoning the vessel with all theequipments and the freight it may have earned during thevoyage.

The term "ship agent" as used in the foregoing provision is broad enoughto include the ship owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256[1921]). Pursuant to said provision, therefore, both the ship owner and shipagent are civilly and directly liable for the indemnities in favor of thirdpersons, which may arise from the conduct of the captain in the care ofgoods transported, as well as for the safety of passengerstransported Yangco vs. Laserna, supra; Manila Steamship Co., Inc. vs.Abdulhaman et al., 100 Phil. 32 [1956]).However, under the same Article, this direct liability is moderated andlimited by the ship agent's or ship owner's right of abandonment of thevessel and earned freight. This expresses the universal principle of limitedliability under maritime law. The most fundamental effect of abandonmentis the cessation of the responsibility of the ship agent/owner (SwitzerlandGeneral Insurance Co., Ltd. vs. Ramirez, L-48264, February 21, 1980, 96

SCRA 297). It has thus been held that by necessary implication, the shipagent's or ship owner's liability is confined to that which he is entitled as ofright to abandon the vessel with all her equipment and the freight it mayhave earned during the voyage," and "to the insurance thereof if any"(Yangco vs. Lasema, supra). In other words, the ship owner's or agent'sliability is merely co-extensive with his interest in the vessel such that atotal loss thereof results in its extinction. "No vessel, no liability" expressesin a nutshell the limited liability rule. The total destruction of the vesselextinguishes maritime liens as there is no longer any res to which it canattach (Govt. Insular Maritime Co. vs. The Insular Maritime, 45 Phil. 805,807 [1924]).As this Court held:

If the ship owner or agent may in any way be held civilly

liable at all for injury to or death of passengers arising fromthe negligence of the captain in cases of collisions or

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shipwrecks, his liability is merely co-extensive with hisinterest in the vessel such that a total loss thereof resultsin its extinction. (Yangco vs. Laserna, et al., supra).

The rationale therefor has been explained as follows:The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions of the MaritimeLaw, Book III, Code of Commerce, had its origin in theprevailing conditions of the maritime trade and seavoyages during the medieval ages, attended by

innumerable hazards and perils. To offset against theseadverse conditions and to encourage ship building andmaritime commerce, it was deemed necessary to confinethe liability of the owner or agent arising from theoperation of a ship to the vessel, equipment, and freight, orinsurance, if any, so that if the ship owner or agentabandoned the ship, equipment, and freight, his liabilitywas extinguished. (Abueg vs. San Diego, 77 Phil. 730[1946])

0 Without the principle of limited liability, a ship owner andinvestor in maritime commerce would run the risk of beingruined by the bad faith or negligence of his captain, andthe apprehension of this would be fatal to the interest ofnavigation." Yangco vs. Lasema, supra).

0 As evidence of this real nature of the maritime law we have(1) the limitation of the liability of the agents to the actualvalue of the vessel and the freight money, and (2) the rightto retain the cargo and the embargo and detention of thevessel even in cases where the ordinary civil law would notallow more than a personal action against the debtor orperson liable. It will be observed that these rights arecorrelative, and naturally so, because if the agent canexempt himself from liability by abandoning the vessel andfreight money, thus avoiding the possibility of risking hiswhole fortune in the business, it is also just that his

maritime creditor may for any reason attach the vesselitself to secure his claim without waiting for a settlement ofhis rights by a final judgment, even to the prejudice of athird person. (Phil. Shipping Co. vs. Vergara, 6 Phil. 284[1906]).

The limited liability rule, however, is not without exceptions, namely: (1)where the injury or death to a passenger is due either to the fault of theship owner, or to the concurring negligence of the ship owner and thecaptain (Manila Steamship Co., Inc. vs. Abdulhaman supra); (2) where thevessel is insured; and (3) in workmen's compensation claims Abueg vs. SanDiego, supra). In this case, there is nothing in the records to show that theloss of the cargo was due to the fault of the private respondent asshipowners, or to their concurrent negligence with the captain of the

vessel.

What about the provisions of the Civil Code on common carriers?Considering the "real and hypothecary nature" of liability under maritimelaw, these provisions would not have any effect on the principle of limitedliability for ship owners or ship agents. As was expounded by this Court:

In arriving at this conclusion, the fact is not ignored thatthe illfated, S.S. Negros, as a vessel engaged in interislandtrade, is a common carrier, and that the relationshipbetween the petitioner and the passengers who died in themishap rests on a contract of carriage. But assuming that

petitioner is liable for a breach of contract of carriage, theexclusively 'real and hypothecary nature of maritime lawoperates to limit such liability to the value of the vessel, orto the insurance thereon, if any. In the instant case it doesnot appear that the vessel was insured. (Yangco vs.Laserila, et al., supra).

Moreover, Article 1766 of the Civil Code provides:Art. 1766. In all matters not regulated by this Code, therights and obligations of common carriers shall begoverned by the Code of Commerce and by special laws.

In other words, the primary law is the Civil Code (Arts. 17321766) and indefault thereof, the Code of Commerce and other special laws are applied.Since the Civil Code contains no provisions regulating liability of shipowners or agents in the event of total loss or destruction of the vessel, it isthe provisions of the Code of Commerce, more particularly Article 587, thatgovern in this case.In sum, it will have to be held that since the ship agent's or ship owner'sliability is merely co-extensive with his interest in the vessel such that atotal loss thereof results in its extinction (Yangco vs. Laserna, supra), andnone of the exceptions to the rule on limited liability being present, theliability of private respondents for the loss of the cargo of copra must bedeemed to have been extinguished. There is no showing that the vesselwas insured in this case.WHEREFORE, the judgment sought to be reviewed is hereby AFFIRMED. Nocosts.SO ORDERED.LITONJUA SHIPPING COMPANY INC., petitioner

vs.NATIONAL SEAMEN BOARD and GREGORIO P.CANDONGO respondents.Ferrer, Valte, Mariano, Sangalang & Villanueva for petitioner.Estratonico S. Anano for private respondent.FELICIANO,J.:In this Petition for Certiorari, petitioner Litonjua Shipping Company, Inc.("Lintonjua") seeks to annul and set aside a decision dated, 31 May 1979 ofthe National Seamen Board ("NSB") in NSB Case No. 1331-77 affirming thedecision dated 17 February 1977 of the NSB hearing officer whichadjudged petitioner Litonjua liable to private respondent for violation of thelatter's contract of employment and which ordered petitioner to pay

damages.

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Petitioner Litonjua is the duly appointed local crewing Managing Office ofthe Fairwind Shipping Corporation ('Fairwind). The M/V Dufton Bayis anocean-going vessel of foreign registry owned by the R.D. Mullion ShipBroking Agency Ltd. ("Mullion"). On 11 September 1976, while the DuftonBaywas in the port of Cebu and while under charter by Fairwind, thevessel's master contracted the services of, among others, privaterespondent Gregorio Candongo to serve as Third Engineer for a period oftwelve (12) months with a monthly wage of US$500.00. This agreementwas executed before the Cebu Area Manning Unit of the NSB. Thereafter,

private respondent boarded the vessel. On 28 December 1976, beforeexpiration of his contract, private respondent was required to disembark atPort Kelang, Malaysia, and was returned to the Philippines on 5 January1977. The cause of the discharge was described in his Seaman's Book as'by owner's arrange". 1

Shortly after returning to the Philippines, private respondent filed acomplaint before public respondent NSB, which complaint was docketed asNSB-1331-77, for violation of contract, against Mullion as the shippingcompany and petitioner Litonjua as agent of the shipowner and of thecharterer of the vessel.At the initial hearing, the NSB hearing officer held a conference with theparties, at which conference petitioner Litonjua was represented by one ofits supercargos, Edmond Cruz. Edmond Cruz asked, in writing, that thehearing be postponed for a month upon the ground that the employee ofLitonjua in charge of the case was out of town. The hearing officer deniedthis request and then declared petitioner Litonjua in default. At thehearing, private respondent testified that when he was recruited by theCaptain of the Dufton Bay, the latter was accompanied to the NSB CebuArea Manning Unit by two (2) supercargos sent by petitioner Litonjua toCebu, and that the two (2) supercargos Edmond Cruz and Renato Litonjuaassisted private respondent in the procurement of his NationalInvestigation and Security Agency (NISA) clearance. Messrs. Cruz andLitonjua were also present during private respondent's interview byCaptain Ho King Yiu of the Dufton Bay.On 17 February 1977, the hearing officer of the NSB rendered a judgmentby default, 2 the dispositive portion of which read:

Wherefore, premises considered, judgment is hereby

rendered ordering the respondents R.D. MullionShipbrokers Co., Ltd., and Litonjua Shipping Co., Inc.,jointly and solidarily to pay the complainant the sum offour thousand six hundred fifty seven dollars and sixtythree cents ($4,657.63) or its equivalent in the Phil.currency within 10 days from receipt of the copy of thisDecision the payment of which to be coursed through thethen NSB.

The above conclusion was rationalized in the following terms:From the evidence on record it clearly appears that therewas no sufficient or valid cause for the respondents toterminate the services of complainant prior to 17September 1977, which is the expiry date of the contract.

For this reason the respondents have violated theconditions of the contract of employment which is a

sufficient justification for this Board to render award infavor of the complainant of the unpaid salaries due thelatter as damages corresponding to the unexpired portionof the contract including the accrued leave pay computedon the basis of five [51 days pay for every month of servicebased at $500.00 monthly salary. Complainant's wagesaccount further show that he has an undrawn wageamounting to US$13.19 to be paid by the respondentsPhilippine agency together with his accrued leave pay. 3

Petitioner Litonjua filed a motion for reconsideration of the hearing officer'sdecision; the motion was denied. Petitioner next filed an "Appeal and/orMotion for Reconsideration of the Default Judgment dated 9 August 1977"with the central office of the NSB. NSB then suspended its hearing officer'sdecision and lifted the order of default against petitioner Litonjua, therebyallowing the latter to adduce evidence in its own behalf The NSB hearingofficer, on 26 April 1978, made the following findings:

While it appears that in the preparation of the employmentpapers of the complainant, what was indicated therein wasR.D. Mullion Co. (HK) Ltd. referring to Exhibit "B" (StandardFormat of a Service Agreement) and Exhibit "C" (Affidavitof Undertaking), as thecompany whom Captain Ho KingYiu, the Master of the vessel Dufton Bay, was representingto be the shipowner, the fact remains that at the time ofthe recruitment of the complainant, as duly verified by theNational Seamen Board, Cebu Area Manning Unit, theLitonjua Shipping Company was the authorized agent ofthe vessel's charterer, the Fairwind Shipping Corporation,and that in the recruitment process, the Litonjua ShippingCompany through its supercargos in the persons ofEdmund Cruz and Renato Litonjua, had knowledge thereofand in fact assisted in the interviews conducted by theMaster of the crew applicants as admitted by RenatoLitonjua including the acts of facilitating the crew's NISAclearances as testified to by complainant. Moreover, theparticipation of the Litonjua Shipping Corporation in therecruitment of complainant, together with the other

crewmembers, in Cebu in September 1976 can be tracedto the contents of the letter of April 5, 1976 by the FairwindShipping Limited, thru its Director David H.L. Wu addressedto the National Seamen Board, copy of which is on file withContracts and Licensing Division, quote:This is to certify that Messrs. Litonjua Shipping, Inc. is dulyappointed local crewing Managing Office to attend on ourCrew requirements as well as attend to our ship'srequirements when in Philippine ports.We further authorized Litonjua Shipping Co., Inc. to act aslocal representative who can sue and be sued, and to bindand sign contracts for our behalf. 4

The NSB then lifted the suspension of the hearing officer's 17 February

1977 decision.

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Petitioner Litonjua once more moved for reconsideration. On 31 May 1979,public respondent NSB rendered a decision 5 which affirmed its hearingoffices decision of 17 February 1977 and which read in part as follows:

It is clear that respondent Litonjua Shipping Co., Inc. is theauthorized Philippine agent of Fairwind ShippingCorporation, charterer of the vessel 'Dufton Bay, whereincomplainant, served as 3rd Engineer from 17 Septemberuntil disembarkation on December 28, 1976. It is also clearfrom the complainant's wages account bearing the heading

'Fairwind Shipping Corporation', signed by the Master ofthe vessel that the Philippine agency referred to hereindirected to pay the said withdrawn wages of $13.19 is noother than Litonjua Shipping Company, Inc.From this observation, it can be reasonably inferred thatthe master of the vessel acted for and in behalf of FairwindShipping Corporation who had the obligation to pay thesalary of the complainant. It necessarily follows thatFairwind Shipping Corporation is the employer of saidcomplainant. Moreover, it had been established bycomplainant that Litonjua Shipping Company, Inc., hadknowledge of and participated, through its employee, inthe recruitment of herein complainant.xxx xxx xxxIn view of the foregoing, and pursuant to Art. 3 of the NewLabor Code of the Philippines, which provides that, 'Thestate shall afford protection to labor . . .' as well as theprovisions of Art. 4 thereof, that 'all doubts in theimplementation and interpretation of the provisions of theCode, including its implementing rules and regulations,shall be resolved in favor of labor', it is our conclusion, thatthe decision dated February 17, 1977, is based onevidence formally offered and presented during thehearing and that there was no grave abuse of discretioncommitted by the hearing officer in finding respondentLitonjua Shipping Company, Inc., liable to complainant.(Emphasis supplied)

In the instant Petition for Certiorari, petitioner Litonjua assails the decisionof public respondent NSB declaring the charterer Fairwind as employer ofprivate respondent, and for whose liability petitioner was maderesponsible, as constituting a grave abuse of discretion amounting to lackof jurisdiction. The principal if not the sole issue to be resolved here iswhether or not the charterer Fairwind was properly regarded as theemployer of private respondent Candongo.Petitioner Litonjua makes two (2) principal submissions in support of itscontention, to wit:

1) As a general rule, admiralty law as embodied in thePhilippine Code of Commerce fastens liability for paymentof the crew's wages upon the ship owner, and not thecharterer; and

2) The evidence of record is grossly inadequate to shiftsuch liability from the shipowner to the petitioner. 6

Petitioner Litonjua contends that the shipowner, not the charterer, was theemployer of private respondent; and that liability for damages cannot beimposed upon petitioner which was a mere agent of the charterer. It isinsisted that private respondent's contract of employment and affidavit ofundertaking clearly showed that the party with whom he had contractedwas none other than Mullion, the shipowner, represented by the ship'smaster. 7Petitioner also argues that its supercargos merely assistedCaptain Ho King Yiu of the Dufton Bayin being private respondent as ThirdEngineer. Petitioner also points to the circumstance that the discharge and

the repatriation of private respondent was specified in his Seaman's Bookas having been "by owner's arrange." Petitioner Litonjua thus argues thatbeing the agent of the charterer and not of the shipowner, it accordinglyshould not have been held liable on the contract of employment of privaterespondent.We are not persuaded by petitioner's argument. We believe that there aretwo (2) grounds upon which petitioner Litonjua may be held liable to theprivate respondent on the contract of employment.The first basis is the charter party which existed between Mullion, theshipowner, and Fairwind, the charterer. In modern maritime law and usage,there are three (3) distinguishable types of charter parties: (a) the"bareboat" or "demise" charter; (b) the "time" charter; and (c) the"voyage" or "trip" charter. A bareboat or demise charter is a demise of avessel, much as a lease of an unfurnished house is a demise of realproperty. The shipowner turns over possession of his vessel to thecharterer, who then undertakes to provide a crew and victuals and suppliesand fuel for her during the term of the charter. The shipowner is notnormally required by the terms of a demise charter to provide a crew, andso the charterer gets the "bare boat", i.e., without a crew. 8 Sometimes, ofcourse, the demise charter might provide that the shipowner is to furnish amaster and crew to man the vessel under the charterer's direction, suchthat the master and crew provided by the shipowner become the agentsand servants or employees of the charterer, and the charterer (and not theowner) through the agency of the master, has possession and control ofthe vessel during the charter period. A time charter, upon the other hand,like a demise charter, is a contract for the use of a vessel for a specifiedperiod of time or for the duration of one or more specified voyages. In this

case, however, the owner of a time-chartered vessel (unlike the owner of avessel under a demise or bare-boat charter), retains possession andcontrol through the master and crew who remain his employees. What thetime charterer acquires is the right to utilize the carrying capacity andfacilities of the vessel and to designate her destinations during the term ofthe charter. A voyage charter, or trip charter, is simply a contract ofaffreightment, that is, a contract for the carriage of goods, from one ormore ports of loading to one or more ports of unloading, on one or on aseries of voyages. In a voyage charter, master and crew remain in theemploy of the owner of the vessel. 9

It is well settled that in a demise or bare boat charter, the charterer istreated as ownerpro hac vice of the vessel, the charterer assuming inlarge measure the customary rights and liabilities of the shipowner in

relation to third persons who have dealt with him or with the vessel.10

Insuch case, the Master of the vessel is the agent of the charterer and not of

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the shipowner. 11The charterer or ownerpro hac vice, and not the generalowner of the vessel, is held liable for the expenses of the voyage includingthe wages of the seamen. 12

It is important to note that petitioner Litonjua did not place into the recordof this case a copy of the charter party covering the M/V Dufton Bay. Wemust assume that petitioner Litonjua was aware of the nature of abareboat or demise charter and that if petitioner did not see fit to includein the record a copy of the charter party, which had been entered into byits principal, it was because the charter party and the provisions thereof

were not supportive of the position adopted by petitioner Litonjua in thepresent case, a position diametrically opposed to the legal consequence ofa bareboat charter. 13 Treating Fairwind as owner pro hac vice, petitionerLitonjua having failed to show that it was not such, we believe and so holdthat petitioner Litonjua, as Philippine agent of the charterer, may be heldliable on the contract of employment between the ship captain and theprivate respondent.There is a second and ethically more compelling basis for holdingpetitioner Litonjua liable on the contract of employment of privaterespondent. The charterer of the vessel, Fairwind, clearly benefitted fromthe employment of private respondent as Third Engineer of the DuftonBay, along with the ten (10) other Filipino crewmembers recruited byCaptain Ho in Cebu at the same occasion. 14If private respondent had notagreed to serve as such Third Engineer, the ship would not have been ableto proceed with its voyage. The equitable consequence of this benefit tothe charterer is, moreover, reinforced by convergence of othercircumstances of which the Court must take account. There is thecircumstance that only the charterer, through the petitioner, was presentin the Philippines. Secondly, the scope of authority or the responsibility ofpetitioner Litonjua was not clearly delimited. Petitioner as noted, took theposition that its commission was limited to taking care of vessels owned byFairwind. But the documentary authorization read into the record of thiscase does not make that clear at all. The words "our ships" may well beread to refer both to vessels registered in the name of Fairwind andvessels owned by others but chartered by Fairwind. Indeed thecommercial, operating requirements of a vessel for crew members and forsupplies and provisions have no relationship to the technical

characterization of the vessel as owned by or as merely chartered byFairwind. In any case, it is not clear from the authorization given byFairwind to petitioner Litonjua that vessels chartered by Fairwind (andowned by some other companies) were notto be taken care of bypetitioner Litonjua should such vessels put into a Philippine port. Thestatement of account which the Dufton Bay'sMaster had signed and whichpertained to the salary of private respondent had referred to a Philippineagency which would take care of disbursing or paying such account. 'thereis no question that Philippine agency was the Philippine agent of thecharterer Fairwind. Moreover, there is also no question that petitionerLitonjua did assist the Master of the vessel in locating and recruitingprivate respondent as Third Engineer of the vessel as well as ten (10) otherFilipino seamen as crew members. In so doing, petitioner Litonjua certainly

in effect represented that it was taking care of the crewing and otherrequirements of a vessel chartered by its principal, Fairwind. 15

Last, but certainly not least, there is the circumstance that extremehardship would result for the private respondent if petitioner Litonjua, asPhilippine agent of the charterer, is not held liable to private respondentupon the contract of employment. Clearly, the private respondent, and theother Filipino crew members of the vessel, would be defenseless against abreach of their respective contracts. While wages of crew membersconstitute a maritime lien upon the vessel, private respondent is in noposition to enforce that lien. If only because the vessel, being one offoreign registry and not ordinarily doing business in the Philippines or

making regular calls on Philippine ports cannot be effectively held toanswer for such claims in a Philippine forum. Upon the other hand, itseems quite clear that petitioner Litonjua, should it be held liable to privaterespondent for the latter's claims, would be better placed to securereimbursement from its principal Fairwind. In turn, Fairwind would be in anindefinitely better position (than private respondent) to seek and obtainrecourse from Mullion, the foreign shipowner, should Fairwind feel entitledto reimbursement of the amounts paid to private respondent throughpetitioner Litonjua.We conclude that private respondent was properly regarded as anemployee of the charterer Fairwind and that petitioner Litonjua may beheld to answer to private respondent for the latter's claims as the agent inthe Philippines of Fairwind. We think this result, which public respondentreached, far from constituting a grave abuse of discretion, is compelled byequitable principles and by the demands of substantial justice. To holdotherwise would be to leave private respondent (and others who may findthemselves in his position) without any effective recourse for the unjustdismissal and for the breach of his contract of employment.WHEREFORE, the Petition for certiorari is DISMISSED and the Decision ofthe then National Seamen Board dated 31 May 1979 is hereby AFFIRMED.No pronouncement as to costs.SO ORDERED.PHILIPPINE NATIONAL BANK/NATIONAL INVESTMENT

DEVELOPMENT CORPORATION,petitioners, vs. THE COURTOF APPEALS, CHINA BANKING CORPORATION, respondents.

D E C I S I O NGONZAGA-REYES,J.:

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

The facts of the case are as follows:To finance the acquisition of seven (7) ocean-going vessels, namely

M/V Asean Liberty, M/V Asean Independence, M/V Asean Mission, M/VAsean Knowledge, M/V Asean Nations, M/V Asean Greatness, andM/V Asean Objectives, the Philippine International Shipping Corporation(hereinafter PISC) applied for and was granted by petitioner NationalInvestment and Development Corporation (hereinafter NIDC) the

following guaranty accommodations:

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a. US$9.44 Million in favor of Ultrafin A.G. of Zurich, Switzerlandas Agent for the banks/financial institutions as evidenced byand subject to the terms and conditions of a GuarantyAgreement dated December 7, 1978 to partly finance theacquisition 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 termsand conditions of a Consolidated Amendatory Agreementdated January 25, 1979 to finance the acquisition cost of four

(4) additional ocean-going vessels; andc. US$1.291 Million in favor of PNB as evidenced by and subjectto the terms and conditions of that Second ConsolidatedAmendatory Agreement dated July 17, 1979 to finance theadditional acquisition cost of one (1) ocean-going vessel.[3]

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

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

b. Supplemental Chattel Mortgage dated October 2, 1979constituted on M/V Asean Independence, M/V AseanMission, M/V Asean Knowledge, and M/V AseanObjectives and recorded with the Philippine Coast GuardHeadquarters on February 13, 1980; and

c. Supplemental Chattel Mortgage constituted on M/V AseanGreatness and recorded with the Philippine Coast GuardHeadquarters on February 3, 1981.[4]

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

On May 28, 1979, the Central Bank of the Philippines authorized PISCto open with private respondent China Banking Corporation (hereinafterCBC) 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 theCentral Bank of the Philippines dated May 28, 1979 as amended on June20, 1979.[6]

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

On September 17, 1979, a Promissory note for US$545,000.00 wasexecuted by PISC in favor of Citibank pursuant to the Loan Agreement forUS$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 representedthe principal balance due to Citibank as of March 17, 1983 under thepromissory note executed by PISC, the proceeds of which were used forthe repair and conversion of M/V Asean Liberty. Thus, on March 30, 1983,CBC instructed its correspondent Irving Trust Co., by cable, to pay toCitibank 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$242,225.00had been debited against CBCs Account No. 8033278269 and remitted toCitibank.[8]

On May 10, 1983, for failure of PISC to settle its obligations in theamount of US$64,789,470.96, petitioner PNB conducted, thru the SheriffsOffice, an auction sale of the mortgaged vessels, except for the vessel M/VAsean Objective. Petitioner NIDC emerged as the highest bidder in theseauctions.[9]

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

As accurately narrated in the trial courts Order and adopted by theCourt of Appeals in its Decision of March 21, 1997, the followingproceedings transpired in the lower court:Records show that on May 27, 1983, PISC (Philippine InternationalShipping Corporation) filed suit against National Investment andDevelopment Corporation (NIDC, for short) and Philippine National Bank(PNB, for short) for annulment of foreclosure of mortgage and auction salewith damages vis--vis the sale on foreclosure of vessels Asean Mission,Asean Knowledge, Asean Nations and Asean Greatness (as well as AseanLiberty and Asean Independence). NIDC answered the complaint, and inan amended answer impleaded additional counterclaim defendants. In anOrder dated September 29, 1984, then Judge Jose L. Coscolluela, Jr.dismissed the complaint as against PNB and the counterclaimeddefendants. And under date of November 3, 1986, the complaint i tselfagainst and the NIDC counterclaims were dismissed with prejudice.In the meantime, NIDC acquired the vessels as highest bidder in theforeclosure thereof initiated by PNB, NIDC having thereafter disposed ofsaid vessels in favor of the National Steel Corporation (NSC).

Complaints in intervention were filed by and for Unitor Ships Services PTE,Ltd., IMO Industries AB, UDDVALLARVARVET AB, Hyundai, Shipyard Co.,Lloyds, China bank, Chiang Tung Enterprises Co., Ltd., Pan Asia, Inc., andHANMF Marine Service, Co., Ltd., for recovery upon maritime liens againstthe proceeds of the sale of the foreclosed vessels. The parties concerned,except for intervenors Lloyds and China Bank, eventually submitted aCompromise Agreement dated July 12, 1989, and made the basis for theDecision of August 23, 1989.As first stated, there now remain only Lloyds and China Bank claims inintervention, recovery upon which is covered by a PNB bank guaranteetherefor if found matters of entitlement (sic) by said intervenors.Intervenor Lloyds claim is for the service of herein intervenor LloydsRegister of Shipping to class aforementioned vessels (M/V Asean Nations

and Asean Greatness) during the period covering July 22, 1981 to July 14,1983 and the cost for said maritime surveys in the sum of HK$65,930.00,

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UKC10,363.45 and P9,653.00 said to have been unpaid by PISC despitedemands. NIDC traversed the Lloyds claim as not being preferredmaritime liens and in any event inferior in nature.Intervenor China Banks claims are predicated on (i) a China Bank StandbyLetter of Credit in favor of Citibank, N. A. purportedly to cover repair andpartial conversion of M/V Asean Liberty, to the extent of US$242,225.00paid by China Bank to Citibank, and said to be now owing by PISC togetherwith stipulated interest; (ii) a China Bank loan of US$2,700,000.00 asevidenced by a promissory note, the loan proceeds said to have allowed

PISC to reduce overhead expenses and afford it competitive advantage inoverseas shipping, and to pay for bunker fuel, defray port expenses andstorage, container rental and insurance, as well as salaries and wages ofcrew members; and (iii) a China bank commercial letter of credit to PISC infavor of Bank of America, particularly a BA Draft for US$648,002.54 said tohave been applied towards vessel repair and conversion by the ChinaShipbuilding Corporation of Taiwan, together with stipulated interests duefrom PISC. China Banks claims are premised on the above as beingpreferred maritime liens. NIDC rejects said claims as not being maritimeliens, much less preferred maritime liens.Shortly after the undersigned penning Judge assumed his duties in thisCourt, Lloyds and China Bank were enjoined to furnish opposite counselwith copies of the documentation of their respective claims, to obviate thenecessity of adducing evidence in point on matters capable of

stipulation. Thus, failing formulation of any amicable settlement in themanner arrived at by all other intervenors, pre-trial proceedings for thesubject last remaining claims in intervention by and for Lloyds and ChinaBank resulted in an August 9, 1991 Pre-Trial Order which set forth-A. NATURE OF THE CASEClaimant-intervenor Lloyds Register of Shipping seeks recovery as unpaidcreditor of HK$65,930., UK Pounds C10,363.45 and P9,653.00 as being inthe nature of preferred maritime liens on the vessels M/V ASEANNATIONS and ASEAN GREATNESS, representing costs for maritimeservices rendered for said vessels for the period July 22, 1981 to July 14,1983.Intervenor-claimant China Banking Corporation seeks recovery, as being inthe nature of a preferred maritime lien, of the sum of US$3,890,227.53,

representing the totality of loans extended by said intervenor-claimantsaid to have been expended in financing repair and conversion costs, forexpenses and storage container rentals and insurance premium paid outby it.Plaintiffs admit the recoverability of said claims as being in the nature ofpreferred maritime liens, whereas PNB-NIDC contests the said claims.B. STIPULATIONS AND ADMISSIONS.Plaintiffs, PNB-NIDC and intervenor-claimant Lloyds Register of Shippingstipulate and admit that the totality of its claims as fully supported bydocumentation already verified by the parties are in the sums ofHK$65,930,00, UKC10,363.45 and P9,653.00.Plaintiffs, PNB-NIDC and intervenor-claimant China Banking Corporationstipulate and admit that the totality of its claim is in the sum of

US$3,870,227.53 as fortified by documentation already verified in point.C. ISSUES.

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

i. Whether or not said claims, in the context inwhich they sought to be recovered, arepreferred maritime lien as would entitle saidclaims to recover, and

ii. Whether or not assuming recoverabilitythereon as being in the nature of maritimeliens, such recovery may be allowed in

relation with PNBs being the mortgagee of theassets 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 trialcourt issued on March 4, 1992 an Order dismissing the complaint-in-intervention filed by private respondent CBC for lack of merit. Indismissing the complaint-in-intervention, the trial court ruled that the claimof private respondent CBC was not a preferred maritime lien but wasmerely a loan extended to PISC by CBC.

Private respondent CBC appealed the Order of the trial court to theCourt of Appeals. In its appeal, private respondent CBC imputed thefollowing 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 InternationalShipping 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 BankingCorporation did not acquire the maritime liens of PhilippineInternational Shipping Corporation's creditors by subrogation.

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

On March 21, 1997, the Court of Appeals promulgated its questioned

decision, the dispositive portion of which states:WHEREFORE, insofar as the appellant CBC is concerned, the appealedOrder is hereby SET ASIDE and judgment is rendered:

(a) Directing the appellee Philippine National Bank/NationalInvestment and Development Corporation to pay the appellantChina Banking Corporation from the proceeds of theforeclosure sale of M/V Asean Liberty the amount ofUS$242,225.00 or its Philippine Peso Equivalent at the time ofpayment, with interest thereon at the legal rate fromNovember 7, 1984, the date of filing of CBCs complaint-in-intervention, until fully paid; and

(b) Ordering the appellee Philippine International ShippingCorporation to pay the same CBC the amounts of

US$648,002.54 and US$2.7 Million plus stipulated interests,

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arrangement fees, swap premiums, expenses, losses, taxesand penalties,

xxxSO ORDERED.[13]

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

Not satisfied with the decision of the appellate court, petitionersPNB/NIDC institute the present petition for review oncertiorari where theyraise the following issues:

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

II.

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

On the first issue, petitioners argue that the Court of Appealscommitted grave error in law in taking cognizance of the appeal interposedby private respondent CBC from the Order of the trial court dated 4 March1992 involving as it does pure questions of law. They claim that the Courtof Appeals had no jurisdiction to entertain and pass upon the appealinterposed by private respondent CBC as the issues raised therein are

purely legal. As such, petitioners continue, the appeal of CBC should havebeen lodged directly with the Supreme Court by way of petition for reviewon certiorari under Rule 45 of the Revised Rules of Court. Citing thepronouncement of this Court en banc in Anacleto Murillo vs. RodolfoConsul[14], the petitioners conclude that the appeal made by privaterespondent CBC to the Court of Appeals should have been dismissed bythe respondent court for lack of jurisdiction.

It is true that the decisions of the Regional Trial Court may be directlyreviewed by the Supreme Court on petition for review if pure questions oflaw are raised. Circular 2-90,[15] which petitioners cite and which outlinedthe applicable rules of procedure on this matter at that time, indirectlystates that cases from the Regional Trial Court raising only questions oflaw 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 ofthe Court of Appeals by the wrong or inappropriate mode shall bedismissed.xxx xxx xxx

(c) Raising issues purely of law in the Court of Appeals or appealby wrong mode. If an appeal under Rule 41 is taken from theRegional Trial Court to the Court of Appeals and therein theappellant raises only questions of law, the appeal shall bedismissed, issues purely of law not being reviewable by saidcourt. xxx

(d) No transfer of appeals erroneously taken. No transfers ofappeals erroneously taken to the Supreme Court or to theCourt of Appeals to whichever of these Tribunals hasappropriate appellate jurisdiction will be allowed; continuedignorance or willful disregard of the law on appeals will not betolerated.

From the cited provisions, it is clear that the Court of Appeals does nothave jurisdiction over appeals from the Regional Trial Court that raisepurely questions of law. Appeals of this nature should be raised to theSupreme Court.[16] Furthermore, transfer of erroneous appeals is notallowed and the tribunal which receives the erroneous appeal shouldperforce 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 towhether the same raised questions or errors of law alone. If the petitionraised only questions of law, then the Court of Appeals had no jurisdictionto take cognizance of the case and should have dismissed the caseoutright. On the other hand, if the petition raised only questions of fact orquestions of both fact and law, then the Court of Appeals correctlyexercised jurisdiction over the issue.[17]

As such, even if, as in this case, the documentary evidence adducedby the parties was admitted without objection, a question of fact is stillinvolved when the query necessarily invites the calibration of the wholeevidence including the relevancy of surrounding circumstances and theirrelation to each other.

On this point, we note with approval the following justification made

by the respondent court in assuming jurisdiction over the case:A question of fact has been distinguished from a question of law in thiswise:At this point, the distinction between a question of fact and a question oflaw must be clear. As distinguished from a question of law which existswhen the doubt or difference arises as to what the law is on certain stateof facts there is a question of fact when the doubt or difference arises asto the truth or the falsehood of alleged facts; or when the querynecessarily invites calibration of the whole evidence considering mainly thecredibility of witnesses, existence and relevancy of specific surroundingcircumstances, their relation to each other and to the whole andprobabilities of the situation.(Bernardo vs. Court of Appeals, 216 SCRA224)

Stated differently, a question of law does not involve an examination of theprobative value of the evidence presented by the litigants or any of them;

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otherwise, if such examination and re-evaluation of the evidence is calledfor, a question of fact is raised.In the decision from which the CBC appealed, the trial court primarily heldthat the former is a mere money lender and not a maritime lienor. In itsappeal, the CBC argues that in so holding, the trial court disregarded themaritime purposes for which the loans it extended to the PhilippineInternational Shipping Corporation (PISC) were availed of and used. Theissue thus raised cannot be judiciously resolved without reviewing theprobative weight of the evidence on record consisting in the main of thevarious documents, contracts and transactions attached to CBCscomplaint-in-intervention. It is, therefore, indubitable that mixed questionsof fact and of law are involved over which this Court has jurisdiction.[18]

Thus, in resolving the issues raised by private respondent in the Courtof Appeals, the appellate court had to make a factual inquiry, amongothers, on the nature and terms of the contracts among the differentparties, the relationship of the different parties with one another and withrespect to the vessels involved in the case, how the proceeds of the loanswere used, and the correct dates when the maritime and mortgage lienswere constituted on the vessels. The determination of these facts iscrucial as it will resolve whether the amount advanced by respondent CBCis in the nature of a maritime lien and if so, whether the lien is superior tothe mortgage lien of petitioners. If the appellate court, in the exercise ofits review power, finds that the amount advanced by CBC was used for the

repair of the vessels, then a mortgage lien was indubitably establishedover the shipping vessels. Moreover, a determination of the dates whenthe respective liens of the parties were constituted over the vessels willanswer 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 f indings.

Verily, the issues raised by private respondent in the appellate courtwere cognizable by the said court, the issues being mixed questions of factand law. Respondent court was therefore acting within its jurisdictionwhen it promulgated its questioned decision.

The next issue brought up by petitioners is whether or not privaterespondent CBCs claim for US$242,225.00 is in the nature of a maritimelien. It is the contention of petitioners that (t)he Court of Appeals gravely

erred in law in holding that private respondent CBCs claim under itsStandby Letter of Credit No. 79/4174 is a maritime lien, and that saidmaritime lien is preferred over the mortgage lien of petitioners PNB/NIDCon 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 21of the said Presidential Decree provides as follows:Sec. 17. Preferred Maritime Liens, Priorities, Other Liens (a) Upon thesale of any mortgaged vessel in any extra-judicial sale or by order of adistrict court of the Philippines in any suit in rem in admiralty for theenforcement of a preferred mortgage lien thereon, all pre-existing claimson the vessel, including any possessory common-law lien of which a lienoris deprived under the provisions of Section 16 of this Decree, shall be held

terminated and shall thereafter attach, in like amount and in accordancewith the priorities established herein to the proceeds of the sale. The

preferred mortgage lien shall have priority over all claims against thevessel, except the following claims in the order stated: (1) expenses andfees allowed and costs taxed by the court and taxes due to thegovernment; (2) crews wages; (3) general average; (4) salvage; includingcontract salvage; (5) maritime liens arising prior in time to the recording ofthe preferred mortgage; and (6) damages arising out of tort; and (7)preferred mortgage registered prior in time.(b) If the proceeds of the sale should not be sufficient to pay all creditorsincluded in one number or grade, the residue shall be divided among thempro rata. All credits not paid, whether fully or partially shall subsist asordinary credits enforceable by personal action against the debtor. Therecord of judicial sale or sale by public auction shall be recorded in theRecord of Transfers & Encumbrances of Vessels in the port ofdocumentation.Sec. 21. Maritime Lien for Necessaries; persons entitled to such lien. Anyperson furnishing repairs, supplies, towage, use of dry dock or maritimerailway, 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 allegeor prove that credit was given to the vessel.

Under these provisions, any person furnishing repairs, supplies, orother necessaries to a vessel on credit will have a maritime lien on the saidvessel. 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 byvirtue of its repair of the said vessel on credit. Under the ContractAgreement dated March 12, 1979 between Hongkong United Dockyards,Ltd. and PISC, the former, as contractor, obligated itself to repair andconvert the vessel M/V Asean Liberty, which was owned by PISC. Section7 of the said Agreement provides as follows:

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

b) Payment will be:(1) Before departure of vessel from Contractors

yard: 20% of contract price;(2) 60 days from departure of vessel from

Contractors yard: 40% of contract price;(3) 90 days from departure of vessel from

Contractors yard: 40% of contract price. [20]

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

It is the contention of private respondent CBC however, that it

ultimately acquired the maritime lien of Hongkong United Dockyards, Ltd.over the vessel M/V Asean Liberty. As shown by the documentary

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evidence offered by private respondent CBC, its proof that it acquired saidmaritime lien is as follows:

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

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

(c) On June 15, 1979, PISC executed an Application andAgreement with private respondent CBC for the opening of aStandby Letter of Credit for US$545,000.00 in favor ofCitibank, N.A., Makati, Metro Manila as beneficiary. Theagreement confirmed that the letter of credit would be used toguarantee the loan in the amount of US$545,000.00, theproceeds 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 forany sum or sums not exceeding a total of US$545,000.00. Perexpress terms of the Letter of Credit, its purpose was toguarantee (Citibanks) loan to Philippine International ShippingCorporation, the proceeds of which loan, according toaccountee, are to finance partially the conversion cost of thevessel M/V ASIAN LIBERTY[24];

(e) Pursuant to its loan agreement with Citibank, PISC executedon September 17, 1979 a promissory note for US$545,000.00in favor of Citibank, promising to pay the latter the principalsum of US$545,000.00 in nine (9) consecutive semi-annual

installments of US$60,555.00 commencing one (1) year fromdate hereof or on September 17, 1980 until September 17,1984[25];

(f) On March 25, 1983, Citibank sent a letter to privaterespondent CBC calling and drawing on CBCs Letter of CreditNo. 79/4174 and certifying that the draft attached thereto forUS$242,225.00 represents the principal balance due toCitibank as of March 17, 1983 under PISCs Promissory Note ofSeptember 17, 1979[26]. This March 25, 1983 letter likewiseindicated that the loan due from PISC was used to financepartially the conversion cost of the vessel M/V Asian Liberty;

(g) On March 30, 1983, private respondent CBC instructed bycable its correspondent, Irving Trust Co., to pay Citibank

US$242,225.00. On the same date, Irving Trust Co., advisedprivate respondent CBC by mail that the sum of

US$242,225.00 was debited against CBCs Account No.8033278269 and remitted to the Citibank Foreign CurrencyDeposit Unit, Makati[27];

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

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

It is the holding of the appellate court, however, that privaterespondent stepped into the shoes of Hongkong United Dockyards, Ltd. bylegal subrogation and thus acquired the maritime lien of the latter over thevessel M/V Asean Liberty. Thus:It is not disputed that CBCs claim for US$242,225.00 and US$648,002.54refer to the repair an

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