G.R. No. 44058




Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 44058 September 30, 1937 PHILIPPINE TRUST COMPANY, plaintiff-appellee, vs. SMITH NAVIGATION COMPANY, defendant-appellee. RAMON L. VERZOSA, ET AL., intervenors. EL VARADERO DE MANILA, intervenor-appellant. Pedro Sabido for intervenor-appellant. Feria and La'O for plaintiff-appellee. Ernesto Zaragoza for defendant-appellee. Francisco Astilla for intervenors. VILLA-REAL, J.: This is an appeal taken by the intervenor El Varadero de Manila from the judgment of the Court of First Instance of Manila, the dispositive part of which reads as follows: For the foregoing considerations, judgment is rendered dismissing the complaint in intervention of the Varadero de Manila. The defendant Smith Navigation Company is ordered to pay to the plaintiff Philippine Trust Company, as "trustee of an express trust", the sum of P64,000 Philippine currency, with interest thereon at 12 per cent per annum from January 3, 1934, until fully paid, plus an additional sum equivalent to 10 per cent of the above-stated amount for costs, attorney's fees, expenses and liquidated damages. As soon as this judgment becomes final and executory and upon failure of the defendant to make such payment, the sheriff of the City of Manila is authorized to proceed in accordance with law to sell the two mortgaged vessels "Ethel Conklin" and "Ethel Edwards" separately at public auction, applying the proceeds thereof to the amount of this judgment, it being understood that the schooner "Ethel Conklin" is subject to the preferred claim of the crew, intervenor herein, in the sum of P1,688.50, which claim should be paid with preference to that of the plaintiff. So ordered. As ground for its appeal, the appellant assigns four alleged errors claimed by it to have been committed by the court a quo in its judgment in question, which will be discussed in the course of this decision. When the case was called for hearing, the parties agreed upon the existence of the following pertinent facts: That the defendant Smith Navigation Company, on January 3, 1936, executed a document by virtue of which it constituted a mortgage on the schooner "Ethel Conklin" and the motorship "Ethel Edwards", both of Manila registry, to secure the payment to the plaintiff Philippine Trust Company of said defendant's indebtedness in the sum of P66,000, with interest thereon at 12 per cent per annum from January 3, 1934, payable monthly on or before the 15th of every month from said date; that the mortgage in question has been registered in the Bureau of Customs; that it has been stipulated that in case of violation of any of the terms and conditions of said mortgage the entire amount unpaid would become due and payable and the mortgage could be foreclosed; that it has been agreed that in case of foreclosure of the mortgage the defendant would pay a sum equivalent to 10 per cent of all the sums due and unpaid for costs, attorney's fees, expense and liquidated damages; that of the debt claimed by the Philippine Trust Company, there remains only the sum of P64,000 plus interest thereon at 12 per cent per annum due and unpaid from April 16, 1934; that the defendant Smith Navigation Company has failed to pay interest from April 16, 1934, to date; that the claim of the intervenor El Varadero de Manila for the repairs made on the vessels amounts to P11,486.78 as evidenced by the complaint in intervention; that such claim has not been registered either in the Bureau of Customs or in any other place; that before causing such repairs to be made the defendant Smith Navigation Company did not inform the plaintiff Philippine Trust Company thereof; that said repairs were made on the vessels "Ethel Conklin" and "Ethel Edwards" from the month of June, 1933, to June, 1934 (Exhibits 1-V to 30-V of the Varadero de Manila). In addition to the above-stated facts, on the existence of which the parties have stipulated, the following have been established at the trial, some by the preponderance of evidence and others without discussion, to wit: The intervenors Ramon L. Verzoza et al., who were the officer and crew of the motorship "Ethel Conklin", rendered services as such from March 29, 1934, up to 2 o'clock in the afternoon of May 13th of said year when said motorship was tied up. The vessel in question thereafter made no other voyage because to repair it by order of the Bureau of Customs (Exhibit 3). From the month of repairs for which El Varadero de Manila claims payment were made and finished in the month of June, 1933. Wilson G. Smith, general manager of the defendant-appellee Smith Navigation Company, testifying as a witness, stated, among other things, that the mortgage creditor Philippine Trust Company had not been notified in writing of the repairs in question, as required by Exhibit A, because the current practice is that when the repairs are made by order of the Bureau of Customs said notice is not served, and because the witness had a verbal agreement with Nolting and Ford, then president and vice-president, respectively, of the Philippine Trust Company, relative to said repairs. Edward V. Ford, testifying in rebuttal, denied that Nolting and he had such verbal agreement, stating that he came to know of said repairs only when they had already been carried out, that is, some time prior to the filing of the action in the present case. The parties recognize the preferred right of Ramon L. Verzosa et al. to collect their salaries earned during the last voyage of the schooner "Ethel Conklin", for services rendered by them as officer and crew thereof. Article 2 of the Code of Commerce provides that commercial transactions, be they performed by merchants or not, whether they are specified in this Code or not shall be governed by the provisions contained in the same; in the absence of such provisions, by the commercial customs generally observed in each place; and in the absence of both, by those be considered those enumerated in said Code and any others of a similar character. Both mortgage of vessels and the repair thereof are commercial transactions, being enumerated in said Code (art. 580, Code of Commerce). Subsection 8 of the above-cited article 580 of the Code of Commerce provides that the credits arising from the repair and equipment of the vessels during its last voyage shall have preference, but that in order that said credits may enjoy such preference, they must appear by contracts recorded in the registry of vessels. The repairs made by the intervenor El Varadero de Manila on the vessels under consideration, and the supply of materials employed by it in said repairs were not effected by virtue of the contract recorded in the registry of vessels. Therefore said intervenor cannot invoke in its favor the privilege granted by said article. No commercial custom generally observed in the place as governing a verbal contract on the repair of vessels bas been cited to this court. Neither is this court aware of the existence of any such custom. This deficiency compels this court to resort to the common law, which is the case in the Civil Code, supplementary to the Code of Commerce (Decisions of the Supreme Court of Spain of April 28, 1899, December 29, 1898, and February 16, 1897; Urrutia & Co. vs. Baco River Plantation Co., 26 Phil., 632; Compañia General de Tabacos vs. Molina, 5 Phil., 142, 146). "Where the law and commercial customs afford no express or analogous rule to decide the Civil Code but also the special laws and the customs that complete it." (Vivante, Derecho Mercantil, volume I, page 92, paragraph 7.) Article 1922, subsection 1, of the Civil code provides that credits for the repair of personal property in the possession of the debtor are preferred to the extent of the value of the same. The vessels under consideration, for value the same. The vessels under consideration, for the repair of which the intervenor El Varadero de Manila claims payment from the defendant Smith Navigation Company, are pre-eminently personal property (article 585, code of Commerce; Philippine Refining co. vs. Jarque, 61 Phil., 230). Under the provision of article 1926 of the Civil Code, credits which enjoy preference with respect to certain personal property exclude all others to the extent of the value of the property to which such preference relates. In the present case there exist a credit for the repair of vessels sold at public auction and another one secured by a chattel mortgage constituted thereon. Credits secured by chattel mortgage are not included among those that enjoy preference under the above-cited article 1922 of the Civil Code. Consequently, the mortgage credit of the plaintiff Philippine Trust Company cannot concur with the credit for repairs of the intervenor El Varadero de Manila, with respects to the proceeds of the sale at public auction of the repaired vessels "Ethel Conklin" and "Ethel Edwards" which were in the possession of the defendant Smith Navigation Company. (International Banking Corporation vs. Corrales, 10 Phil., 435; Yek Tong Lin Fire & Marine Insurance Co. vs. Yusingco, p. 473, ante). Therefore, by applying the provisions of article 1922, subsection 1, in connection with those of article 1926, of the Civil Code, the intervenor El Varadero de Manila is entitled to reimbursement for the cost of the repairs of the vessels "Ethel Conklin" and "Ethel Edwards" and of the material employed therein, from the proceeds of the sale at public auction of the vessels in question, with preference to the mortgage credit of the plaintiff Philippine Trust Company. As to the question whether or not by reason of the failure of the defendant Smith Navigation Company to notify the plaintiff Philippine Trust Company of the necessity of making the repairs and of the order given by it to the intervenor El Varadero de Manila to make such repairs on the vessels in question, El Varadero de Manila is not entitled to collect the value of said repairs with preference to the credit secured by the mortgage constituted on said vessels, the agreement entered into between the defendant Smith Navigation Company and the plaintiff Philippine Trust Company, whereby said defendant binds itself to notify said plaintiff of the necessity of making any repair on said vessels, is not binding on said intervenor El Varadero de Manila on the ground that it was not a party to said contract, notwithstanding the fact that the chattel mortgage wherein said obligation was made to appear is recorded in the registry of transfer and liens of vessels of the Bureau of Customs. In the case of Pacific Commercial Co. vs. Webb and Falcon (51 Phil., 745), this court has laid down the doctrine that "the repair man is not a party to the terms and provisions in a chattel mortgage to the effect that the mortgagor cannot encumber the auto for subsequent repairs without the written consent of the mortgagee, and in the absence of personal knowledge of their existence, he is not legally bound which such provisions in the chattel mortgage." In the case under consideration, it does not appear that the intervenor El Varadero de Manila had personal knowledge of the existence of such stipulation in the instrument of mortgage of the vessels "Ethel Conklin" and "Ethel Edwards" before the defendant and mortgagor Smith Navigation Company ordered their repair and said intervenor accepted said order. Although the above-cited case involves an automobile, the mortgage of which is governed by Act No. 1508, otherwise known as the Chattel Mortgage Law, and not a vessel, the mortgage of which is governed by section 1171 of the Revised Administration Code (Arroyo vs. Yulo de Sane, 54 Phil., 511), the question at issue is the same and, therefore, the same principle is applicable. Under the above-cited provisions of law and doctrine of this court, the intervenor El Varadero de Manila is not barred from collecting the amount of the repairs made by it with preference to the mortgage credit of the plaintiff Philippine Trust Company. (Article 1922, subsection 1, in connection with article 1926, of the Civil Code.) For the foregoing considerations, this court is of the opinion and so holds: (1) That the credits claimed by the intervenor El Varadero de Manila, for repairs made on the vessels "Ethel Conklin" and "Ethel Edwards" during their last voyage, which do not appear in a written instrument recorded in the registry of vessels, are governed by the provisions of article 1922, subsection 1, in connection with those of article 1926, of the Civil Code, and enjoy preference over the credits secured by mortgage constituted on said vessels in favor of the plaintiff Philippine Trust Company; (2) that as the intervenor El Varadero de Manila was not a party to the contract of mortgage of vessels entered between the plaintiff Philippine Trust Company and the defendant Smith Navigation Company, imposing the condition that the mortgagee must be notified of any repair to be made on the mortgaged vessels, said intervenor is not subject to said condition, notwithstanding the fact that the instrument of mortgage is recorded in the Bureau of Customs. Wherefore, the appealed judgment is reversed in so far as it dismisses the complaint in intervention El Varadero de Manila, and it is ordered that from the proceeds of the sale at public auction of the two vessels "Ethel Conklin" and "Ethel Edwards" the sheriff of the City of Manila, after having satisfied the claim of the other intervenors Ramon L. Verzosa et al., who constitute the officer and crew of the schooler "Ethel Conklin", pay first to said intervenor El Varadero de Manila the sum of P11,486.78, with legal interest thereon from the date of their filing of the complaint in intervention, until fully paid, and lastly pay the plaintiff Philippine Trust Company in the manner provided for in the appealed judgment, with costs to the plaintiff-appellee. So ordered. Avanceña, C.J., Abad Santos, Imperial, and Diaz, JJ., concur.. Separate Opinions CONCEPCION, J., dissenting: I regret to have to dissent from the majority opinion. I think the question of preference of credit involved in this case should be decided in accordance with the provisions of the Code of Commerce, as it has to do with the preference between a credit secured by the mortgage of a vessel recorded in the registry of the Bureau of Customs, on the one hand, and a credit for repairs made on the same vessel, on the other, all of which transactions are commercial in character. In order to determine which of the two creditors has a preferred right to collect its credit, we have to resort to article 580, subsection 8, of the Code of Commerce. The repairs made on the vessel not having been made to appear by contract recorded in the registry by vessels, the intervenor El Varadero de Manila cannot invoke a preferred right to collect its credit for repairs; and taking into consideration the fact that the plaintiff has the mortgage of the vessel recorded in its favor, the right of preference belongs to it. Neither article 1922, subsection 1, nor article 1926 of the Civil Code is applicable because the provisions of said Code merely serve as supplementary law in the absence of express provisions of the Code of Commerce governing a particular case. Inasmuch as the case under consideration is covered by the provisions of article 580 of the Code of Commerce, the question of preference raised herein can not be decided under the provisions of the Civil Code. The doctrine laid down in the case of International Banking Corporation vs. Corrales (10 Phil., 435), is not pertinent to the present case because the question now under discussion, that the contract for repairs of the vessel was not made to appear in writing and was not registered in the Bureau of Customs, was not raised therein. I am of the opinion that the credit of the intervenor El Varadero de Manila is merely a personal one with no right of preference over the mortgage credit of the plaintiff. For this reason, I believe the appealed judgment should be affirmed. The Lawphil Project - Arellano Law Foundation