SHIP MORTGAGE DECREE

CRESCENT PETROLEUM, LTD., Petitioner,

vs.
M/V "LOK MAHESHWARI," THE SHIPPING CORPORATION OF INDIA, and PORTSERV
LIMITED and/or TRANSMAR SHIPPING, INC., Respondents.

DECISION

PUNO, J.:

This petition for review on certiorari under Rule 45 seeks the (a) reversal of the November 28, 2001
Decision of the Court of Appeals in CA-G.R. No. CV-54920,1 which dismissed for "want of
jurisdiction" the instant case, and the September 3, 2002 Resolution of the same appellate
court,2 which denied petitioners motion for reconsideration, and (b) reinstatement of the July 25,
1996 Decision3 of the Regional Trial Court (RTC) in Civil Case No. CEB-18679, which held that
respondents were solidarily liable to pay petitioner the sum prayed for in the complaint.

The facts are as follows: Respondent M/V "Lok Maheshwari" (Vessel) is an oceangoing vessel of
Indian registry that is owned by respondent Shipping Corporation of India (SCI), a corporation
organized and existing under the laws of India and principally owned by the Government of India. It
was time-chartered by respondent SCI to Halla Merchant Marine Co. Ltd. (Halla), a South Korean
company. Halla, in turn, sub-chartered the Vessel through a time charter to Transmar Shipping, Inc.
(Transmar). Transmar further sub-chartered the Vessel to Portserv Limited (Portserv). Both
Transmar and Portserv are corporations organized and existing under the laws of Canada.

On or about November 1, 1995, Portserv requested petitioner Crescent Petroleum, Ltd. (Crescent),
a corporation organized and existing under the laws of Canada that is engaged in the business of
selling petroleum and oil products for the use and operation of oceangoing vessels, to deliver marine
fuel oils (bunker fuels) to the Vessel. Petitioner Crescent granted and confirmed the request through
an advice via facsimile dated November 2, 1995. As security for the payment of the bunker fuels and
related services, petitioner Crescent received two (2) checks in the amounts of US$100,000.00 and
US$200,000.00. Thus, petitioner Crescent contracted with its supplier, Marine Petrobulk Limited
(Marine Petrobulk), another Canadian corporation, for the physical delivery of the bunker fuels to the
Vessel.

On or about November 4, 1995, Marine Petrobulk delivered the bunker fuels amounting to
US$103,544 inclusive of barging and demurrage charges to the Vessel at the port of Pioneer Grain,
Vancouver, Canada. The Chief Engineer Officer of the Vessel duly acknowledged and received the
delivery receipt. Marine Petrobulk issued an invoice to petitioner Crescent for the US$101,400.00
worth of the bunker fuels. Petitioner Crescent issued a check for the same amount in favor of Marine
Petrobulk, which check was duly encashed.

Having paid Marine Petrobulk, petitioner Crescent issued a revised invoice dated November 21,
1995 to "Portserv Limited, and/or the Master, and/or Owners, and/or Operators, and/or Charterers of
M/V Lok Maheshwari" in the amount of US$103,544.00 with instruction to remit the amount on or
before December 1, 1995. The period lapsed and several demands were made but no payment was
received. Also, the checks issued to petitioner Crescent as security for the payment of the bunker
fuels were dishonored for insufficiency of funds. As a consequence, petitioner Crescent incurred
additional expenses of US$8,572.61 for interest, tracking fees, and legal fees.
On May 2, 1996, while the Vessel was docked at the port of Cebu City, petitioner Crescent instituted
before the RTC of Cebu City an action "for a sum of money with prayer for temporary restraining
order and writ of preliminary attachment" against respondents Vessel and SCI, Portserv and/or
Transmar. The case was raffled to Branch 10 and docketed as Civil Case No. CEB-18679.

On May 3, 1996, the trial court issued a writ of attachment against the Vessel with bond
at P2,710,000.00. Petitioner Crescent withdrew its prayer for a temporary restraining order and
posted the required bond.

On May 18, 1996, summonses were served to respondents Vessel and SCI, and Portserv and/or
Transmar through the Master of the Vessel. On May 28, 1996, respondents Vessel and SCI, through
Pioneer Insurance and Surety Corporation (Pioneer), filed an urgent ex-parte motion to approve
Pioneers letter of undertaking, to consider it as counter-bond and to discharge the attachment. On
May 29, 1996, the trial court granted the motion; thus, the letter of undertaking was approved as
counter-bond to discharge the attachment.

For failing to file their respective answers and upon motion of petitioner Crescent, the trial court
declared respondents Vessel and SCI, Portserv and/or Transmar in default. Petitioner Crescent was
allowed to present its evidence ex-parte.

On July 25, 1996, the trial court rendered its decision in favor of petitioner Crescent, thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff [Crescent] and
against the defendants [Vessel, SCI, Portserv and/or Transmar].

Consequently, the latter are hereby ordered to pay plaintiff jointly and solidarily, the following:

(a) the sum of US$103,544.00, representing the outstanding obligation;

(b) interest of US$10,978.50 as of July 3, 1996, plus additional interest at 18% per annum for the
period thereafter, until the principal account is fully paid;

(c) attorneys fees of P300,000.00; and

(d) P200,000.00 as litigation expenses.

SO ORDERED.

On August 19, 1996, respondents Vessel and SCI appealed to the Court of Appeals. They attached
copies of the charter parties between respondent SCI and Halla, between Halla and Transmar, and
between Transmar and Portserv. They pointed out that Portserv was a time charterer and that there
is a clause in the time charters between respondent SCI and Halla, and between Halla and
Transmar, which states that "the Charterers shall provide and pay for all the fuel except as otherwise
agreed." They submitted a copy of Part II of the Bunker Fuel Agreement between petitioner Crescent
and Portserv containing a stipulation that New York law governs the "construction, validity and
performance" of the contract. They likewise submitted certified copies of the Commercial
Instruments and Maritime Lien Act of the United States (U.S.), some U.S. cases, and some
Canadian cases to support their defense.
On November 28, 2001, the Court of Appeals issued its assailed Decision, which reversed that of the
trial court, viz:

WHEREFORE, premises considered, the Decision dated July 25, 1996, issued by the Regional Trial
Court of Cebu City, Branch 10, is hereby REVERSED and SET ASIDE, and a new one is entered
DISMISSING the instant case for want of jurisdiction.

The appellate court denied petitioner Crescents motion for reconsideration explaining that it
"dismissed the instant action primarily on the ground of forum non conveniens considering that the
parties are foreign corporations which are not doing business in the Philippines."

Hence, this petition submitting the following issues for resolution, viz:

1. Philippine courts have jurisdiction over a foreign vessel found inside Philippine waters for the
enforcement of a maritime lien against said vessel and/or its owners and operators;

2. The principle of forum non conveniens is inapplicable to the instant case;

3. The trial court acquired jurisdiction over the subject matter of the instant case, as well as over
the res and over the persons of the parties;

4. The enforcement of a maritime lien on the subject vessel is expressly granted by law. The Ship
Mortgage Acts as well as the Code of Commerce provides for relief to petitioner for its unpaid claim;

5. The arbitration clause in the contract was not rigid or inflexible but expressly allowed petitioner to
enforce its maritime lien in Philippine courts provided the vessel was in the Philippines;

6. The law of the state of New York is inapplicable to the present controversy as the same has not
been properly pleaded and proved;

7. Petitioner has legal capacity to sue before Philippine courts as it is suing upon an isolated
business transaction;

8. Respondents were duly served summons although service of summons upon respondents is not a
jurisdictional requirement, the action being a suit quasi in rem;

9. The trial courts decision has factual and legal bases; and,

10. The respondents should be held jointly and solidarily liable.

In a nutshell, this case is for the satisfaction of unpaid supplies furnished by a foreign supplier in a
foreign port to a vessel of foreign registry that is owned, chartered and sub-chartered by foreign
entities.

Under Batas Pambansa Bilang 129, as amended by Republic Act No. 7691, RTCs exercise
exclusive original jurisdiction "(i)n all actions in admiralty and maritime where the demand or claim
exceeds two hundred thousand pesos (P200,000) or in Metro Manila, where such demand or claim
exceeds four hundred thousand pesos (P400,000)." Two (2) tests have been used to determine
whether a case involving a contract comes within the admiralty and maritime jurisdiction of a court -
the locational test and the subject matter test. The English rule follows the locational test wherein
maritime and admiralty jurisdiction, with a few exceptions, is exercised only on contracts made upon
the sea and to be executed thereon. This is totally rejected under the American rule where the
criterion in determining whether a contract is maritime depends on the nature and subject matter of
the contract, having reference to maritime service and transactions. 4 In International Harvester
Company of the Philippines v. Aragon,5 we adopted the American rule and held that "(w)hether or
not a contract is maritime depends not on the place where the contract is made and is to be
executed, making the locality the test, but on the subject matter of the contract, making the true
criterion a maritime service or a maritime transaction."

A contract for furnishing supplies like the one involved in this case is maritime and within the
jurisdiction of admiralty.6 It may be invoked before our courts through an action in rem or quasi in
rem or an action in personam. Thus: 7

xxx

"Articles 579 and 584 [of the Code of Commerce] provide a method of collecting or enforcing not
only the liens created under Section 580 but also for the collection of any kind of lien
whatsoever."8 In the Philippines, we have a complete legislation, both substantive and adjective,
under which to bring an action in rem against a vessel for the purpose of enforcing liens. The
substantive law is found in Article 580 of the Code of Commerce. The procedural law is to be found
in Article 584 of the same Code. The result is, therefore, that in the Philippines any vessel even
though it be a foreign vessel found in any port of this Archipelago may be attached and sold under
the substantive law which defines the right, and the procedural law contained in the Code of
Commerce by which this right is to be enforced.9 x x x. But where neither the law nor the contract
between the parties creates any lien or charge upon the vessel, the only way in which it can be
seized before judgment is by pursuing the remedy relating to attachment under Rule 59 [now Rule
57] of the Rules of Court.10

But, is petitioner Crescent entitled to a maritime lien under our laws? Petitioner Crescent bases its
claim of a maritime lien on Sections 21, 22 and 23 of Presidential Decree No. 1521 (P.D. No.
1521), also known as the Ship Mortgage Decree of 1978, viz:

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

Sec. 22. Persons Authorized to Procure Repairs, Supplies and Necessaries. - The following persons
shall be presumed to have authority from the owner to procure repairs, supplies, towage, use of dry
dock or marine railway, and other necessaries for the vessel: The managing owner, ships husband,
master or any person to whom the management of the vessel at the port of supply is entrusted. No
person tortuously or unlawfully in possession or charge of a vessel shall have authority to bind the
vessel.

Sec. 23. Notice to Person Furnishing Repairs, Supplies and Necessaries. - The officers and agents
of a vessel specified in Section 22 of this Decree shall be taken to include such officers and agents
when appointed by a charterer, by an owner pro hac vice, or by an agreed purchaser in possession
of the vessel; but nothing in this Decree shall be construed to confer a lien when the furnisher knew,
or by exercise of reasonable diligence could have ascertained, that because of the terms of a charter
party, agreement for sale of the vessel, or for any other reason, the person ordering the repairs,
supplies, or other necessaries was without authority to bind the vessel therefor.

Petitioner Crescent submits that these provisions apply to both domestic and foreign vessels, as well
as domestic and foreign suppliers of necessaries. It contends that the use of the term "any person"
in Section 21 implies that the law is not restricted to domestic suppliers but also includes all persons
who supply provisions and necessaries to a vessel, whether foreign or domestic. It points out further
that the law does not indicate that the supplies or necessaries must be furnished in the Philippines in
order to give petitioner the right to seek enforcement of the lien with a Philippine court. 11

Respondents Vessel and SCI, on the other hand, maintain that Section 21 of the P.D. No. 1521 or
the Ship Mortgage Decree of 1978 does not apply to a foreign supplier like petitioner Crescent as
the provision refers only to a situation where the person furnishing the supplies is situated inside the
territory of the Philippines and not where the necessaries were furnished in a foreign jurisdiction like
Canada.12

We find against petitioner Crescent.

I.

P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted "to accelerate the growth and
development of the shipping industry" and "to extend the benefits accorded to overseas shipping
under Presidential Decree No. 214 to domestic shipping." 13 It is patterned closely from the U.S. Ship
Mortgage Act of 1920 and the Liberian Maritime Law relating to preferred mortgages. 14 Notably,
Sections 21, 22 and 23 of P.D. No. 1521 or the Ship Mortgage Decree of 1978 are identical to
Subsections P, Q, and R, respectively, of the U.S. Ship Mortgage Act of 1920, which is part of the
Federal Maritime Lien Act. Hence, U.S. jurisprudence finds relevance to determining whether P.D.
No. 1521 or the Ship Mortgage Decree of 1978 applies in the present case.

The various tests used in the U.S. to determine whether a maritime lien exists are the following:

One. "In a suit to establish and enforce a maritime lien for supplies furnished to a vessel in a foreign
port, whether such lien exists, or whether the court has or will exercise jurisdiction, depends on
the law of the country where the supplies were furnished, which must be pleaded and
proved."15 This principle was laid down in the 1888 case of The Scotia,16 reiterated in The Kaiser
Wilhelm II17 (1916), in The Woudrichem18 (1921) and in The City of Atlanta19 (1924).

Two. The Lauritzen-Romero-Rhoditis trilogy of cases, which replaced such single-factor

methodologies as the law of the place of supply.20

In Lauritzen v. Larsen,21 a Danish seaman, while temporarily in New York, joined the crew of a ship
of Danish flag and registry that is owned by a Danish citizen. He signed the ships articles providing
that the rights of the crew members would be governed by Danish law and by the employers
contract with the Danish Seamens Union, of which he was a member. While in Havana and in the
course of his employment, he was negligently injured. He sued the shipowner in a federal district
court in New York for damages under the Jones Act. In holding that Danish law and not the Jones
Act was applicable, the Supreme Court adopted a multiple-contact test to determine, in the
absence of a specific Congressional directive as to the statutes reach, which jurisdictions law
should be applied. The following factors were considered: (1) place of the wrongful act; (2) law of
the flag; (3) allegiance or domicile of the injured; (4) allegiance of the defendant shipowner;
(5) place of contract; (6) inaccessibility of foreign forum; and (7) law of the forum.

Several years after Lauritzen, the U.S. Supreme Court in the case of Romero v. International
Terminal Operating Co.22 again considered a foreign seamans personal injury claim under both the
Jones Act and the general maritime law. The Court held that the factors first announced in the case
of Lauritzen were applicable not only to personal injury claims arising under the Jones Act but
to all matters arising under maritime law in general.23

Hellenic Lines, Ltd. v. Rhoditis24 was also a suit under the Jones Act by a Greek seaman injured
aboard a ship of Greek registry while in American waters. The ship was operated by a Greek
corporation which has its largest office in New York and another office in New Orleans and whose
stock is more than 95% owned by a U.S. domiciliary who is also a Greek citizen. The ship was
engaged in regularly scheduled runs between various ports of the U.S. and the Middle East,
Pakistan, and India, with its entire income coming from either originating or terminating in the U.S.
The contract of employment provided that Greek law and a Greek collective bargaining agreement
would apply between the employer and the seaman and that all claims arising out of the employment
contract were to be adjudicated by a Greek court. The U.S. Supreme Court observed that of the
seven factors listed in the Lauritzen test, four were in favor of the shipowner and against
jurisdiction. In arriving at the conclusion that the Jones Act applies, it ruled that the application of
the Lauritzen test is not a mechanical one. It stated thus: "[t]he significance of one or more factors
must be considered in light of the national interest served by the assertion of Jones Act jurisdiction.
(footnote omitted) Moreover, the list of seven factors in Lauritzen was not intended to be exhaustive.
x x x [T]he shipowners base of operations is another factor of importance in determining whether the
Jones Act is applicable; and there well may be others."

The principles enunciated in these maritime tort cases have been extended to cases involving
unpaid supplies and necessaries such as the
cases of Forsythe International U.K., Ltd. v. M/V Ruth Venture,25 and Comoco Marine Services
v. M/V El Centroamericano.26

Three. The factors provided in Restatement (Second) of Conflicts of Law have also been
applied, especially in resolving cases brought under the Federal Maritime Lien Act. Their application
suggests that in the absence of an effective choice of law by the parties, the forum contacts to be
considered include: (a) the place of contracting; (b) the place of negotiation of the contract; (c) the
place of performance; (d) the location of the subject matter of the contract; and (e) the domicile,
residence, nationality, place of incorporation and place of business of the parties. 27

In Gulf Trading and Transportation Co. v. The Vessel Hoegh Shield,28 an admiralty action in
rem was brought by an American supplier against a vessel of Norwegian flag owned by a Norwegian
Company and chartered by a London time charterer for unpaid fuel oil and marine diesel oil
delivered while the vessel was in U.S. territory. The contract was executed in London. It was held
that because the bunker fuel was delivered to a foreign flag vessel within the jurisdiction of the U.S.,
and because the invoice specified payment in the U.S., the admiralty and maritime law of the U.S.
applied. The U.S. Court of Appeals recognized the modern approach to maritime conflict of law
problems introduced in the Lauritzen case. However, it observed that Lauritzen involved a torts claim
under the Jones Act while the present claim involves an alleged maritime lien arising from unpaid
supplies. It made a disclaimer that its conclusion is limited to the unique circumstances surrounding
a maritime lien as well as the statutory directives found in the Maritime Lien Statute and that the
initial choice of law determination is significantly affected by the statutory policies
surrounding a maritime lien. It ruled that the facts in the case call for the application of the
Restatement (Second) of Conflicts of Law. The U.S. Court gave much significance to the
congressional intent in enacting the Maritime Lien Statute to protect the interests of American
supplier of goods, services or necessaries by making maritime liens available where traditional
services are routinely rendered. It concluded that the Maritime Lien Statute represents a relevant
policy of the forum that serves the needs of the international legal system as well as the basic
policies underlying maritime law. The court also gave equal importance to the predictability of result
and protection of justified expectations in a particular field of law. In the maritime realm, it is
expected that when necessaries are furnished to a vessel in an American port by an American
supplier, the American Lien Statute will apply to protect that supplier regardless of the place where
the contract was formed or the nationality of the vessel.

The same principle was applied in the case of Swedish Telecom Radio v. M/V Discovery I29 where
the American court refused to apply the Federal Maritime Lien Act to create a maritime lien for goods
and services supplied by foreign companies in foreign ports. In this case, a Swedish company
supplied radio equipment in a Spanish port to refurbish a Panamanian vessel damaged by fire.
Some of the contract negotiations occurred in Spain and the agreement for supplies between the
parties indicated Swedish companys willingness to submit to Swedish law. The ship was later sold
under a contract of purchase providing for the application of New York law and was arrested in the
U.S. The U.S. Court of Appeals also held that while the contacts-based framework set forth in
Lauritzen was useful in the analysis of all maritime choice of law situations, the factors were geared
towards a seamans injury claim. As in Gulf Trading, the lien arose by operation of law because the
ships owner was not a party to the contract under which the goods were supplied. As a result, the
court found it more appropriate to consider the factors contained in Section 6 of the Restatement
(Second) of Conflicts of Law. The U.S. Court held that the primary concern of the Federal Maritime
Lien Act is the protection of American suppliers of goods and services.

The same factors were applied in the case of Ocean Ship Supply, Ltd. v. M/V Leah.30

II.

Finding guidance from the foregoing decisions, the Court cannot sustain petitioner Crescents
insistence on the application of P.D. No. 1521 or the Ship Mortgage Decree of 1978 and hold that a
maritime lien exists.

First. Out of the seven basic factors listed in the case of Lauritzen, Philippine law only falls under
one the law of the forum. All other elements are foreign Canada is the place of the wrongful act,
of the allegiance or domicile of the injured and the place of contract; India is the law of the flag and
the allegiance of the defendant shipowner. Balancing these basic interests, it is inconceivable that
the Philippine court has any interest in the case that outweighs the interests of Canada or India for
that matter.

Second. P.D. No. 1521 or the Ship Mortgage Decree of 1978 is inapplicable following the factors
under Restatement (Second) of Conflict of Laws. Like the Federal Maritime Lien Act of the U.S., P.D.
No. 1521 or the Ship Mortgage Decree of 1978 was enacted primarily to protect Filipino suppliers
and was not intended to create a lien from a contract for supplies between foreign entities delivered
in a foreign port.

Third. Applying P.D. No. 1521 or the Ship Mortgage Decree of 1978 and rule that a maritime lien
exists would not promote the public policy behind the enactment of the law to develop the domestic
shipping industry. Opening up our courts to foreign suppliers by granting them a maritime lien under
our laws even if they are not entitled to a maritime lien under their laws will encourage forum
shopping.

Finally. The submission of petitioner is not in keeping with the reasonable expectation of the parties
to the contract. Indeed, when the parties entered into a contract for supplies in Canada, they could
not have intended the laws of a remote country like the Philippines to determine the creation of a lien
by the mere accident of the Vessels being in Philippine territory.

III.

But under which law should petitioner Crescent prove the existence of its maritime lien?

In light of the interests of the various foreign elements involved, it is clear that Canada has the most
significant interest in this dispute. The injured party is a Canadian corporation, the sub-charterer
which placed the orders for the supplies is also Canadian, the entity which physically delivered the
bunker fuels is in Canada, the place of contracting and negotiation is in Canada, and the supplies
were delivered in Canada.

The arbitration clause contained in the Bunker Fuel Agreement which states that New York law
governs the "construction, validity and performance" of the contract is only a factor that may be
considered in the choice-of-law analysis but is not conclusive. As in the cases of Gulf
Trading and Swedish Telecom, the lien that is the subject matter of this case arose by operation of
law and not by contract because the shipowner was not a party to the contract under which the
goods were supplied.

It is worthy to note that petitioner Crescent never alleged and proved Canadian law as basis for the
existence of a maritime lien. To the end, it insisted on its theory that Philippine law applies. Petitioner
contends that even if foreign law applies, since the same was not properly pleaded and proved, such
foreign law must be presumed to be the same as Philippine law pursuant to the doctrine of
processual presumption.

Thus, we are left with two choices: (1) dismiss the case for petitioners failure to establish a cause of
action31 or (2) presume that Canadian law is the same as Philippine law. In either case, the case has
to be dismissed.

It is well-settled that a party whose cause of action or defense depends upon a foreign law has the
burden of proving the foreign law. Such foreign law is treated as a question of fact to be properly
pleaded and proved.32Petitioner Crescents insistence on enforcing a maritime lien before our courts
depended on the existence of a maritime lien under the proper law. By erroneously claiming a
maritime lien under Philippine law instead of proving that a maritime lien exists under Canadian law,
petitioner Crescent failed to establish a cause of action. 33
Even if we apply the doctrine of processual presumption, the result will still be the same. Under P.D.
No. 1521 or the Ship Mortgage Decree of 1978, the following are the requisites for maritime liens on
necessaries to exist: (1) the "necessaries" must have been furnished to and for the benefit of the
vessel; (2) the "necessaries" must have been necessary for the continuation of the voyage of the
vessel; (3) the credit must have been extended to the vessel; (4) there must be necessity for the
extension of the credit; and (5) the necessaries must be ordered by persons authorized to contract
on behalf of the vessel.34 These do not avail in the instant case.

First. It was not established that benefit was extended to the vessel. While this is presumed when
the master of the ship is the one who placed the order, it is not disputed that in this case it was the
sub-charterer Portserv which placed the orders to petitioner Crescent. 35 Hence, the presumption
does not arise and it is incumbent upon petitioner Crescent to prove that benefit was extended to the
vessel. Petitioner did not.

Second. Petitioner Crescent did not show any proof that the marine products were necessary for the
continuation of the vessel.

Third. It was not established that credit was extended to the vessel. It is presumed that "in the
absence of fraud or collusion, where advances are made to a captain in a foreign port, upon his
request, to pay for necessary repairs or supplies to enable his vessel to prosecute her voyage, or to
pay harbor dues, or for pilotage, towage and like services rendered to the vessel, that they are made
upon the credit of the vessel as well as upon that of her owners."36 In this case, it was the sub-
charterer Portserv which requested for the delivery of the bunker fuels. The issuance of two checks
amounting to US$300,000 in favor of petitioner Crescent prior to the delivery of the bunkers as
security for the payment of the obligation weakens petitioner Crescents contention that credit was
extended to the Vessel.

We also note that when copies of the charter parties were submitted by respondents in the Court of
Appeals, the time charters between respondent SCI and Halla and between Halla and Transmar
were shown to contain a clause which states that "the Charterers shall provide and pay for all the
fuel except as otherwise agreed." This militates against petitioner Crescents position that Portserv is
authorized by the shipowner to contract for supplies upon the credit of the vessel.

Fourth. There was no proof of necessity of credit. A necessity of credit will be presumed where it
appears that the repairs and supplies were necessary for the ship and that they were ordered by the
master. This presumption does not arise in this case since the fuels were not ordered by the master
and there was no proof of necessity for the supplies.

Finally. The necessaries were not ordered by persons authorized to contract in behalf of the vessel
as provided under Section 22 of P.D. No. 1521 or the Ship Mortgage Decree of 1978 - the managing
owner, the ships husband, master or any person with whom the management of the vessel at the
port of supply is entrusted. Clearly, Portserv, a sub-charterer under a time charter, is not someone to
whom the management of the vessel has been entrusted. A time charter is a contract for the use of a
vessel for a specified period of time or for the duration of one or more specified voyages wherein the
owner of the time-chartered vessel retains possession and control through the master and crew who
remain his employees.37 Not enjoying the presumption of authority, petitioner Crescent should have
proved that Portserv was authorized by the shipowner to contract for supplies. Petitioner failed.

A discussion on the principle of forum non conveniens is unnecessary.

IN VIEW WHEREOF, the Decision of the Court of Appeals in CA-G.R. No. CV 54920, dated
November 28, 2001, and its subsequent Resolution of September 3, 2002 are AFFIRMED. The
instant petition for review on certiorari is DENIED for lack of merit. Cost against petitioner.

SO ORDERED.

PHILIPPINE NATIONAL BANK/NATIONAL INVESTMENT DEVELOPMENT

CORPORATION, petitioners,
vs.
THE COURT OF APPEALS, CHINA BANKING CORPORATION, respondents.

DECISION

GONZAGA-REYES, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioners seek the
reversal of the 21 March 1997 decision1 of the Court of Appeals in C.A.-G.R. No. CV-38131. The
assailed decision set aside the Order2 dated 4 March 1992 of the Regional Trial Court of Makati City,
Branch 146 in Civil Case No. 7119 insofar as it dismissed the complaint-in-intervention of private
respondent China Banking Corporation.

The facts of the case are as follows:

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

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

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

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

As security for these guaranty accommodations, PISC executed in favor of petitioners the following
mortgage documents:
 a. Deed of Chattel Mortgage dated September 14, 1979 constituted on M/V "Asean Liberty"
and M/V "Asean Nation" and recorded on September 25, 1979 with the Philippine Coast
Guard Headquarters;

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

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

c. Supplemental Chattel Mortgage constituted on M/V "Asean Greatness" and recorded with
the Philippine Coast Guard Headquarters on February 3, 1981.4

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

On May 28, 1979, the Central Bank of the Philippines authorized PISC to open with private
respondent China Banking Corporation (hereinafter "CBC") a standby letter of credit for
US$545,000.00 in favor of Citibank, N.A. (hereinafter "Citibank") to cover the repair and partial
conversion of the vessel M/V "Asean Liberty". This was pursuant to the letter of the Central Bank of
the Philippines dated May 28, 1979 as amended on June 20, 1979.6

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

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

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

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

On May 27, 1983, claiming that the foreclosure sale of its mortgaged vessels was illegal, unjust,
irregular, and oppressive, PISC instituted before the Regional Trial Court of Makati, a civil
case10 against petitioners for the annulment of the foreclosure and auction sale of its vessels and
damages.
As accurately narrated in the trial courts Order and adopted by the Court of Appeals in its Decision
of March 21, 1997, the following proceedings transpired in the lower court:

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

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

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

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

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

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

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

A. NATURE OF THE CASE

Claimant-intervenor Lloyds Register of Shipping seeks recovery as unpaid creditor of HK$65,930.,

UK Pounds C10,363.45 and P9,653.00 as being in the nature of preferred maritime liens on the
vessels M/V "ASEAN NATIONS" and "ASEAN GREATNESS", representing costs for maritime
services rendered for said vessels for the period July 22, 1981 to July 14, 1983.

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

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

B. STIPULATIONS AND ADMISSIONS.

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

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

C. ISSUES.

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

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

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

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

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

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

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

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

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

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

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

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

xxx

SO ORDERED."13

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

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

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

II.

WHETHER OR NOT PRIVATE RESPONDENT CBCS CLAIM FOR US$242,225.OO AS

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

On the first issue, petitioners argue that the Court of Appeals committed grave error in law in taking
cognizance of the appeal interposed by private respondent CBC from the Order of the trial court
dated 4 March 1992 involving as it does pure questions of law. They claim that the Court of Appeals
had no jurisdiction to entertain and pass upon the appeal interposed by private respondent CBC as
the issues raised therein are purely legal. As such, petitioners continue, the appeal of CBC should
have been lodged directly with the Supreme Court by way of petition for review on certiorari under
Rule 45 of the Revised Rules of Court. Citing the pronouncement of this Court en banc in Anacleto
Murillo vs. Rodolfo Consul14 , the petitioners conclude that the appeal made by private respondent
CBC to the Court of Appeals should have been dismissed by the respondent court for lack of
jurisdiction.

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

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

xxx xxx xxx

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

(d) No transfer of appeals erroneously taken. No transfers of appeals erroneously taken to

the Supreme Court or to the Court of Appeals to whichever of these Tribunals has
appropriate appellate jurisdiction will be allowed; continued ignorance or willful disregard of
the law on appeals will not be tolerated."

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

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

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

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

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

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

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

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

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

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

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

The applicable law on the matter is Presidential Decree No. 1521, otherwise known as the Ship
Mortgage Decree of 1978. Sections 17 and 21 of the said Presidential Decree provides as follows:

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

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

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

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

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

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

b) Payment will be:

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

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

(3) 90 days from departure of vessel from Contractors yard: 40% of contract price." 20

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

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

(a) On March 12, 1979, PISC entered into a Contract Agreement with Hongkong United
Dockyards, Ltd., as contractor, for the repair and conversion of its vessel M/V "Asean
Liberty" for a contract price of HK$2,200,000.0021 ;

(b) On May 28, 1979, the Central Bank of the Philippines approved PISCs request to open
with private respondent China Banking Corporation a Standby Letter of Credit for
US$545,000.00 in favor of Hongkong United Dockyards, Ltd. This May 28, 1979 letter stated
that the credit for US$545,000 would be used "to cover the partial conversion cost of the
vessel Asean Liberty". On June 20, 1979, the Central Bank approved the request of PISC to
change the beneficiary of the said Standby Letter of Credit from Hongkong United
Dockyards, Ltd. to Citibank22 ;

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

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

(e) Pursuant to its loan agreement with Citibank, PISC executed on September 17, 1979 a
promissory note for US$545,000.00 in favor of Citibank, promising to pay the latter the
principal sum of US$545,000.00 in nine (9) consecutive semi-annual installments of
US$60,555.00 commencing one (1) year from date hereof or on September 17, 1980 until
September 17, 198425 ;

(f) On March 25, 1983, Citibank sent a letter to private respondent CBC calling and drawing
on CBCs Letter of Credit No. 79/4174 and certifying that the draft attached thereto for
US$242,225.00 represents the principal balance due to Citibank as of March 17, 1983 under
PISCs Promissory Note of September 17, 197926 . This March 25, 1983 letter likewise
indicated that the loan due from PISC was used to finance partially the conversion cost of
the vessel M/V "Asian Liberty";

(g) On March 30, 1983, private respondent CBC instructed by cable its correspondent, Irving
Trust Co., to pay Citibank US$242,225.00. On the same date, Irving Trust Co., advised
private respondent CBC by mail that the sum of US$242,225.00 was debited against CBCs
Account No. 8033278269 and remitted to the Citibank Foreign Currency Deposit Unit,
Makati27 ;

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

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

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

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

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

xxx xxx xxx

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

xxx xxx x x x'

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

Petitioners do not question the abovequoted rationale of the Court of Appeals. It takes exception
however to the appellate courts finding and conclusion that it was ultimately private respondent CBC
which paid off the maritime lienor and that the US$545,000.00 advanced by Citibank was actually
paid to the persons who furnished the repairs on the vessels. On this point, petitioners argue that the
entirety of the documentary evidence of private respondent CBC does not show that the latter
actually paid off the maritime lienholder for the repair of M/V "Asean Liberty" as required by Section
21 of the Ship Mortgage Act of 1978.29 Furthermore, petitioners claim that the respondent court
committed serious error in law when it considered and gave credence to the written deposition of Mr.
George Lim, the President of PISC, as basis for the said finding considering that the same had
earlier been denied admission by the trial court.

There is no merit in the contentions of petitioners.

The provisions of our Ship Mortgage Decree of 1978 were patterned quite closely after the U.S. Ship
Mortgage Act of 1920.30 Significantly, the Federal Maritime Lien Act of the United States, like our Ship
Mortgage Decree of 1978, provides that "any person furnishing repairs, supplies, towage, use of
drydock, or marine railway, or other necessaries, to any foreign or domestic vessel on the order of
the owner of such vessel, or of a person authorized by the owner has a maritime lien on the vessel,
which may be enforced by suit in rem."31 Being of foreign origin, the provisions of the Ship Mortgage
Decree of 1978 may thus be construed with the aid of foreign jurisprudence from which they are
derived except insofar as they conflict with existing laws or are inconsistent with local customs and
institutions.

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

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

On this point, we agree with the position of private respondent that the question of whether or not the
proceeds of the loans extended by Citibank were used for the repair and conversion of M/V "Asean
Liberty" is a factual issue35 which the Court cannot review absent a showing that it was arbitrarily
resolved.36

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

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

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

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

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

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

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

There is no merit in this contention.

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

In the case at bench, the maritime lien over the vessel M/V "Asean Liberty" arose or was constituted
at the time Hongkong United Drydocks, Ltd. made repairs on the said vessel on credit. As such, as
early as March 12, 1979, the date of the contract for the repair and conversion of M/V "Asean
Liberty," a maritime lien had already attached to the said vessel. When Citibank advanced the
amount of US$242,225.00 for the purpose of paying off PISCs debt to Hongkong United Dockyards,
Ltd., it acquired the existing maritime lien over the vessel. When private respondent honored its
contract of guarantee with Citibank on March 30, 1983, it likewise acquired by subrogation the
maritime lien that was already existing over the vessel M/V "Asean Liberty." Thus, when private
respondent CBC chose to exercise its right to the maritime lien during the proceedings in the trial
court, it was actually enforcing a privilege that attached to the ship as early as March 12, 1979.
1wphi1

The maritime lien of private respondent CBC thus arose prior in time to the recording of petitioners
mortgage on September 25, 1979. As such, the said maritime lien has priority over the said
mortgage lien. Pursuant to Section 17 of the Ship Mortgage Decree of 1978, a "preferred mortgage
lien shall have priority over all claims against the vessel" except, among others, "maritime liens
arising prior in time to the recording of the preferred mortgage." The respondent court thus
committed no reversible error when it ruled that the maritime lien of private respondent CBC is
superior to the mortgage lien of petitioners.
WHERFORE, in view of the foregoing, the petition is denied and the decision of the Court of Appeals
dated March 21, 1997 in CA-G.R. CV. No. 38131 is hereby AFFIRMED.

SO ORDERED.

LAND TRANSPORTATION & TRAFFIC CODE

EMILIANO MANUEL and SUPERLINES TRANSPORTATION CO., INC., petitioners,

vs.
HONORABLE COURT OF APPEALS, ERNESTO A. RAMOS substituted by Goyena Z. Ramos,
Grace, David, Jobet, Portia and Banjo, all surnamed RAMOS; and GOYENA ZANAROSA-
RAMOS, for herself and as Guardian Ad Litem for the minors JOBET, BANJO, DAVID and
GRACE, all surnamed RAMOS; FERNANDO ABCEDE, SR., for himself and as Guardian Ad
Litem for minor FERNANDO G. ABCEDE, JR.; MIGUEL JERNZ MAGO, as Guardian Ad
Litem for minor ARLEEN R. MAGO, and ANACLETA J. ZANAROSA, respondents.

Benito P. Fabie for petitioners.

Constante Banayos for private respondents.

QUIASON, J.:

This is an appeal by certiorari under Rule 45 of the Revised Rules of Court from the decision of the
Court of Appeals in CA-G.R. CV No. 11780, and its Resolution dated January 8, 1991, denying
petitioner's motion for reconsideration. The decision subject of the appeal was an affirmation of the
judgement of the Court of First Instance of Camarines Norte, in Civil Case No. 3020 and whose
dispositive portion states:

PREMISES CONSIDERED, judgment is hereby rendered : (1) finding the defendant

Emiliano Manuel negligent, reckless and imprudent in the operation of Superlines
Bus No. 406, which was the proximate cause of the injuries suffered by the plaintiffs
and damage of the Scout Car in which they were riding; (2) ordering the said
defendant, jointly and solidarily, with the defendant Superlines Bus Co., Inc. to pay
plaintiffs the amounts of P49,954,86, as itemized elsewhere in this decision and the
costs.

It appearing that the defendants Superlines Transportation Co., Inc. is insured with
the defendant Perla Compania de Seguros, which has admitted such insurance, the
latter is hereby ordered to pay the former the amounts so stated up to the extent of
its insurance coverage" (Rollo, pp. 70-71).

The operative facts culled from the decision of the Court of Appeals are as follows:

Private respondents were passengers of an International Harvester Scout Car (Scout Car) owned by
respondent Ramos, which left Manila for Camarines Norte in the morning of December 27, 1977 with
respondent Fernando Abcede, Sr. as the driver of the vehicle.
There was a drizzle at about 4:10 P.M. when the Scout car, which was then negotiating the zigzag
road of Bo. Paraiso, Sta. Elena, Camarines Norte, was hit on its left side by a bus. The bus was
owned by petitioner Emiliano Manuel. Due to the impact, the Scout car was thrown backwards
against a protective railing. Were it not for the railing, the Scout car would have fallen into a deep
ravine. All its ten occupants, which included four children were injured, seven of the victims
sustained serious physical injuries (Rollo, p. 28).

Emiliano Manuel, the driver of the bus, was prosecuted for multiple physical injuries through reckless
imprudence in the Municipal Court of Sta. Elena, Camarines Norte. As he could not be found after he
ceased reporting for work a few days following the incident, the private respondents filed the instant
action for damages based on quasi-delict.

After trial, the court a quo rendered judgment against petitioners and Perla Compania de Seguros,
that covered the insurance of the bus. The court ordered them to pay, jointly and severally, the
amount of P49,954.86 in damages to respondents.

On appeal, the Court of Appeals, affirmed the decision of the trial court.

In their appeal before us, petitioners contend that it was Fernando Abcede, Jr., driver of the Scout
car, who was at fault. Besides, petitioners claim the Fernando Abcede, Jr., who was only 19-years
old at the time of the incident, did not have a driver's license (Rollo, p. 10).

Proof of this, according to petitioners, was that:

Immediately after the incident, the bus conductor Cesar Pica and passengers,
including Maximino Jaro, alighted from the bus. A woman passenger of the IH Scout
car, Mrs. Ramos, was heard saying: "Iyan na nga ba ang sinasabi ko, napakalakas
ng loob," referring to young man, Fernando Abcede, Jr. who was the driver of the IH
Scout car (tsn., p. 43, November 19, 1979; tsn, p. 23-A. February 7, 1980) . . . (Rollo,
p. 75).

Likewise, petitioner questioned the accuracy of the pictures and sketches submitted by private
respondents as evidence that the Superlines bus encroached on the lane of the Scout car. According
to them, the sketch made by the police investigator showing the skid marks of the bus, is
inadmissible as evidence because it was prepared the day after the incident and the alleged "tell-
tale" skid marks and other details had already been obliterated by the heavy downpour which lasted
for at least an hour after the accident (Rollo, p. 87). Likewise, they claim that the policeman who
prepared the sketch was not the police officer assigned to conduct the investigation (Rollo, pp. 88-
89).

While it may be accepted that some of the skid marks may have been erased by the "heavy
downpour" on or about the time of the accident, it remains a possibility that not all skid marks were
washed away. The strong presumption of regularity in the performance of official duty (Rule 131,
Sec. 3(m), 1989 Rules on Evidence) erases, in the absence of evidence to the contrary, any
suspicions that the police investigator just invented the skid marks indicated in his report.

Granting, however, that the skid marks in the questioned sketch were inaccurate, nonetheless, the
finding of the Court of Appeals that the collision took place within the lane of the Scout car was
supported by other conclusive evidence. "Indeed, a trail of broken glass which was scattered along
the car's side of the road, whereas the bus lane was entirely clear of debris (Exhibit "L-1," p. 34,
Records, pp. 56-65; TSN, Session of March 14, 1979)" (Rollo, p. 31).

Furthermore, the fact that the Scout car was found after the impact at rest against the guard railing
shows that it must have been hit and thrown backwards by the bus (Rollo, p. 103). The physical
evidence do not show that the Superlines Bus while traveling at high speed, usurped a portion of the
lane occupied by the Scout car before hitting it on its left side. On collision, the impact due to the
force exerted by a heavier and bigger passenger bus on the smaller and lighter Scout car, heavily
damaged the latter and threw it against the guard railing.

Petitioner's contention that the Scout car must have been moved backwards is not only a
speculation but is contrary to human experience. There was no reason to move it backwards against
the guard railing. If the purpose was to clear the road, all that was done was to leave it where it was
at the time of the collision, which was well inside its assigned lane. Besides, even petitioners accept
the fact that when the police arrived at the scene of the accident, they found no one thereat (Rollo, p.
13). This further weakens the possibility that some persons moved the Scout car to rest on the guard
railing.

The evidence with respect to the issue that Fernando Abcede, Jr. who was not duly licensed, was
the one driving the Scout car at the time of the accident, could not simply exempt petitioner's liability
because they were parties at fault for encroaching on the Scout car's lane (Rollo, pp. 29-30).

Nevertheless, the witnesses presented by petitioners who allegedly saw "the younger Abcede pined
behind the driver's wheels," testified on matters that transpired after the accident. Discrediting this
allegation, the Court of Appeals noted that none of the aforesaid witnesses actually saw the younger
Abcede driving the car and that the younger Abcede could have simply been thrown off his seat
toward the steering wheel (Rollo, p. 29).

Be that as it may, this Court has followed a well-entrenched principle that the factual findings of the
Court of Appeals are normally given great weight, more so when the findings tally with the findings of
the trial court and are supported by the evidence (Francisco v. Magbitang, 173 SCRA 382 [1989];
New Owners/Management of TML Garments, Inc. v. Zaragosa, 170 SCRA 563-564 [1989]).

The reason for this entrenched principle is given in Chemplex (Phils.), Inc., et al. v. Ramon
C. Pamatian, et al., 57 SCRA 408 [1974], thus:

This Court is not a trier of facts, and it is beyond its function to make its own findings
of certain vital facts different from those of the trial court, especially on the basis of
the conflicting claims of the parties and without the evidence being properly before it.
For this Court to make such factual conclusions is entirely unjustified first,
because if material facts are controverted, as in this case, and they are issues being
litigated before the lower court, the petition for certiorari would not be in aid of the
appellate jurisdiction of this Court; and, secondly, because it preempts the primary
function of the lower court, namely, to try the case on the merits, receive all the
evidence to presented by the parties, and only then come to a definite decision,
including either the maintenance or the discharge of the preliminary injunction it has
issued.
Appellants, likewise, contested the awarded damages as excessive and unsubstantiated. The trial
court's findings show otherwise, as can be gleaned from the following excerpt of this decision:

Plaintiffs were able to prove their injuries and submitted evidence to show expenses
for their treatment, hospitalization and incidental disbursement (Exhs. AA to HH and
their submarkings), having a total amount of P12,204.86 which had admittedly (sic)
shouldered by plaintiff Ernesto Ramos. Considering the nature of the injuries as
shown by the respective Medical Certificates (Exhs. A to J and their submarkings)
said amount is very reasonable. It was also shown that the Scout car is a total wreck,
the value of which was estimated to be P20,000.00 which may be the same amount
to put (sic) into a running condition. We consider, likewise said amount reasonable
taking into account its brand (International Harvester Scout car). The above
mentioned damages are considered actual or compensatory (Par. 1 Art. 2197 in
relation to Art. 2199, New Civil Code). Evidence was also adduced showing that as a
result of the incident and the resultant injuries there had been an impairment on the
earning capacity of some of the plaintiffs (Fernando Abcede, Sr., Anacleta Zanarosa,
Ernesto Ramos and Goyena Ramos) which are recoverable pursuant to Article 2205
of the New Civil Code. Considering the nature of their injuries one month each loss of
income seem reasonable. Attorney's fees and expenses of litigation is also proper.
Since the act complained of falls under the aegis of quasi-delict (culpa aquilina),
moral damages is likewise available to plaintiffs pursuant to Article 2219 also of the
New Civil Code (Rollo, pp. 113-114).

In addition, moral damages may be recovered if they are the proximate results of defendant's
wrongful acts or omission as in this case (Banson vs. CA, 175 SCRA 297 [1989]).

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals is AFFIRMED, with
costs against petitioners.

SO ORDERED.

METROPOLITAN TRAFFIC COMMAND WEST TRAFFIC DISTRICT, petitioner,

vs.
HON. ARSENIO M. GONONG, in his capacity as Presiding Judge of the Regional Trial Court,
Branch 8 at Manila, and DANTE S. DAVID, respondents.

Dante S. David for and in his own behalf as private respondent.

CRUZ, J.:

We deal here with a practice known to many motorists in Metro Manila: the removal of the license
plates of illegally parked vehicles. This was challenged by the private respondent in the regional trial
court of Manila, which held the practice unlawful. The petitioner is now before us, urging reversal of
the decision for grave abuse of discretion.
The original complaint was filed with the said court on August 10, 1989, by Dante S. David, a lawyer,
who claimed that the rear license plate, of his car was removed by the Metropolitan Traffic Command
while the vehicle was parked on Escolta. He questioned the petitioner's act on the ground not only
that the car was not illegally parked but, more importantly, that there was no ordinance or law
authorizing such removal. He asked that the practice be permanently enjoined and that in the
meantime a temporary restraining order or a writ of preliminary injunction be issued.

Judge Arsenio M. Gonong issued a temporary restraining order on August 14, 1989, and hearings on
the writ of preliminary injunction were held on August 18, 23, and 25, 1989. The writ was granted on
this last date. The parties also agreed to submit the case for resolution on the sole issue of whether
there was a law or ordinance authorizing the removal of the license plates of illegally parked
vehicles. The parties then submitted simultaneous memoranda in support of their respective
positions, following which the respondent judge rendered the assailed decision.

In ruling for the complainant, Judge Gonong held that LOI 43, which the defendant had invoked, did
not empower it "to detach, remove and confiscate vehicle plates of motor vehicles illegally parked
and unattended as in the case at bar. It merely authorizes the removal of said vehicles when they
are obstacles to free passage or continued flow of traffic on streets and highways." At any rate, he
said, the LOI had been repealed by PD 1605. Moreover, the defendant had not been able to point to
any MMC rule or regulation or to any city ordinance to justify the questioned act. On the allegation
that the practice was "the root cause of graft and corruption or at the very least the equivalent of
street racket among defendant's deployed agents," His Honor made the following pointed
observations:

At this juncture, it may not be amiss to say, that if the arbitrary and capricious
detachment and confiscation of vehicles plates illegally parked and unattended as in
the act complained of in the instant case, the image of the man clothed in a traffic or
police uniform will be greatly impaired if not cursed with disrespect on the part of
those who have suffered at his hands. Worse, he will cease (if he had not already
ceased) to be the law-abiding, courageous and valiant protector of a citizen of the
Republic that he is meant to be, and instead his real oppressor and enemy, thereby
fortifying the contemporaneous public perception that he is a dyed-in-the-wool
extortionist if not an unmitigated chiseler. 1

It bears noting that this petition should have been filed first with the Court of Appeals, which has
concurrent jurisdiction with this Court on decisions of the regional trial courts involving questions of
law. However, in view of the importance of the issue raised, we have decided to take cognizance
thereof under Rule 65 of the Rules of Court so we can address and resolve the question directly.

Upon the filing of this petition, we issued a temporary restraining order dated February 6, 1990, to
prevent enforcement of the said decision until further orders from this Court. Thereafter, we required
a comment from the private respondent, to which the petitioner filed a reply as also directed.

The petitioner reiterates and reinforces its argument in the court below and insists that LOI 43
remains in force despite the issuance of PD 1605. It contends that there is no inconsistency between
the two measures because the former deals with illegally parked vehicles anywhere in the
Philippines whereas the latter deals with the regulation of the flow of traffic in the Metro Manila area
only. The two measures may be enforced together because implied repeals are not favored and,
furthermore, to look at them another way, LOI 43 is the special law dealing only with illegal parking
while PD 1605 is the general law dealing with all other kinds of traffic violations. The special law
must of course prevail over the general law. The petitioner also deplores the above-quoted remarks
of the trial judge, pointing out that the parties had agreed to limit the issue to whether there was a
statutory basis for the act complained of. And even assuming that abuses have been committed in
the enforcement of LOI 43, the remedy is not to disregard it or consider it revoked but to prosecute
the guilty parties.

In his comment, the private respondent argues that LOI 43 has been repealed by PD 1605, which
specifies all the sanctions available against the various traffic violations, including illegal parking. He
stresses that removal and confiscation of the license plates of illegally parked vehicles is not one of
them, the penalties being limited in the decree to imposition of fine and suspension or revocation of
driver's licenses or certificates of public convenience, etc. Expressio unius est exclusio alterius. He
agrees that the special law prevails over the general law but maintains it is PD 1605 that is the
special law because it is applicable only on Metro Manila and LOI 43 that is the general law because
it was intended to operate throughout the country. As for his allegation that the challenged practice is
a source of graft, he maintains that it was not improper to discuss it in his memorandum because it
was pertinent to the central issue under consideration. Finally, he claims that removal and
confiscation of the license plate without notice and hearing violates due process because such
license plate is a form of property protected by the Bill of Rights against unlawful deprivation.

In its reply, the petitioner faults the private respondent for belatedly raising the constitutionality of LOI
43, suggesting faintly that this should not be permitted. In any case, it maintains, the license plate is
not property in the constitutional sense, being merely the identification of the vehicle, and its
"temporary confiscation" does not deprive the owner of the use of the vehicle itself. Hence, there is
no unlawful taking under the due process clause. The petitioner also takes issue with the contention
that it is PD 1605 that should be considered the special law because of its limited territorial
application. Repeal of LOI 43 on that ground would run counter to the legislative intention as it is in
fact in Metro Manila that the problem of illegal parking is most acute.

LOI 43, entitled Measures to Effect a Continuing Flow of Transportation on Streets and Highways,
was issued on November 28, 1972, with the following pertinent provisions:

Motor vehicles that stall on the streets and highways, streets and sidewalks, shall
immediately be removed by their owners/users; otherwise said vehicles shall be dealt
with and disposed in the manner stated hereunder;

1. For the first offense the stalled or illegally parked vehicle shall be removed, towed
and impounded at the expense of the owner, user or claimant;

2. For the second and subsequent offenses, the registry plates of the vehicles shall
be confiscated and the owner's certificate of registration cancelled. (Emphasis
supplied).

PD 1605 (Granting the Metropolitan Manila Commission Central Powers Related to Traffic
Management, Providing Penalties, and for Other Purposes) was issued, also by President Marcos,
on November 21, 1978, and pertinently provides:

Section 1. The Metropolitan Manila Commission shall have the power to impose fines
and otherwise discipline drivers and operators of motor vehicles for violations of
traffic laws, ordinances, rules and regulations in Metropolitan Manila in such amounts
and under such penalties as are herein prescribed. For his purpose, the powers of
the Land Transportation Commission and the Board of Transportation under existing
laws over such violations and punishment thereof are hereby transferred to the
Metropolitan Manila Commission. When the proper penalty to be imposed is
suspension or revocation of driver's license or certificate of public convenience, the
Metropolitan Manila Commission or its representatives shall suspend or revoke such
license or certificate. The suspended or revoked driver's license or the report of
suspension or revocation of the certificate of public convenience shall be sent to the
Land Transportation Commission or the Board of Transportation, as the case may
be, for their records update.

xxx xxx xxx

Section 3. Violations of traffic laws, ordinances, rules and regulations, committed

within a twelve-month period, reckoned from the date of birth of the licensee, shall
subject the violator to graduated fines as follows: P10.00 for the first offense, P20.00
for the second offense, P50.00 for the third offense, a one-year suspension of
driver's license for the fourth offense, and a revocation of the driver' license for the
fifth offense: Provided, That the Metropolitan Manila Commission may impose higher
penalties as it may deem proper for violations of its ordinances prohibiting or
regulating the use of certain public roads, streets or thoroughfares in Metropolitan
Manila.

xxx xxx xxx

Section 5. In case of traffic violations, the driver's license shall not be confiscated but
the erring driver shall be immediately issued a traffic citation ticket prescribed by the
Metropolitan Manila Commission which shall state the violation committed, the
amount of fine imposed for the violation and an advice that he can make payment to
the city or municipal treasurer where the violation was committed or to the Philippine
National Bank or Philippine Veterans Bank or their branches within seven days from
the date of issuance of the citation ticket.

If the offender fails to pay the fine imposed within the period herein prescribed, the
Metropolitan Manila Commission or the law enforcement agency concerned shall
endorse the case to the proper fiscal for appropriate proceedings preparatory to the
filing of the case with the competent traffic court, city or municipal court.

If at the time a driver renews his driver's license and records show that he has an
unpaid fine, his driver's license shall not be renewed until he has paid the fine and
corresponding surcharges.

xxx xxx xxx

Section 8. Insofar as the Metropolitan Manila area is concerned, all laws, decrees,
orders, ordinances, rules and regulations, or parts thereof inconsistent herewith are
hereby repealed or modified accordingly. (Emphasis supplied).
A careful reading of the above decree will show that removal and confiscation of the license plate of
any illegally parked vehicle is not among the specified penalties. Moreover, although the
Metropolitan Manila Commission is authorized by the decree to "otherwise discipline" and "impose
higher penalties" on traffic violators, whatever sanctions it may impose must be "in such amounts
and under such penalties as are herein prescribed." The petitioner has not pointed to any such
additional sanctions, relying instead on its argument that the applicable authority for the questioned
act is LOI 43.

The petitioner stresses that under the decree, "the powers of the Land Transportation Commission
and the Board of Transportation over such violations and punishment thereof are (hereby)
transferred to the Metropolitan Manila Commission," and one of such laws is LOI 43. The penalties
prescribed by the LOI are therefore deemed incorporated in PD 1605 as additional to the other
penalties therein specified.

It would appear that what the LOI punishes is not a traffic violation but a traffic obstruction, which is
an altogether different offense. A violation imports an intentional breach or disregard of a rule, as
where a driver leaves his vehicle in a no-parking area against a known and usually visible
prohibition. Contrary to the common impression, LOI 43 does not punish illegal parking per se but
parking of stalled vehicles, i.e., those that involuntarily stop on the road due to some unexpected
trouble such as engine defect, lack of gasoline, punctured tires, or other similar cause. The vehicle is
deemed illegally parked because it obstructs the flow of traffic, but only because it has stalled. The
obstruction is not deliberate. In fact, even the petitioner recognizes that "there is a world of difference
between a stalled vehicle and an illegally parked and unattended one" and suggests a different
treatment for either. "The first means one which stopped unnecessarily or broke down while the
second means one which stopped to accomplish something, including temporary rest. 2

LOI 43 deals with motor vehicles "that stall on the streets and highways' and not those that are
intentionally parked in a public place in violation of a traffic law or regulation. The purpose of the LOI
evidently is to discipline the motorist into keeping his vehicle in good condition before going out into
the streets so as not to cause inconvenience to the public when the car breaks down and blocks
other vehicles. That is why, for the first offense, the stalled vehicle is immediately towed at the
owner's expense to clear the street of the traffic obstruction. Where it appears that the owner has not
learned from his first experience because the vehicle has stalled again, presumably due to his failure
to repair it, the penalty shall be confiscation of the license plate and cancellation of the certificate of
registration petition.

It is worth noting that it is not the driver's license that is confiscated and canceled when the vehicle
stalls on a public street. The LOI goes against the vehicle itself. The object of the measure is to
ensure that only motor vehicles in good condition may use the public streets, and this is effected by
confiscating the license plates and canceling the certificates of registration of those vehicles that are
not roadworthy.

In the case of the private respondent, it is not alleged or shown that his vehicle stalled on a public
thoroughfare and obstructed the flow of traffic. The charge against him is that he purposely parked
his vehicle in a no parking area (although this is disputed by him). The act, if true, is a traffic violation
itc-asl

that may not be punished under LOI 43. The applicable law is PD 1605, which does not include
removal and confiscation of the license plate of the vehicle among the imposable penalties.
Indeed, even if LOI 43 were applicable, the penalty of confiscation would still not be justified as it has
not been alleged, much less shown, that the illegal parking was a second or subsequent offense.
That circumstance must be established at a trial before a court of justice where the vehicle owner
shall have a right to be heard in his defense. The second or subsequent offense cannot be simply
pronounced by the traffic authorities without hearing and without proof. Confiscation of the registry
plate without a judicial finding that the offense charge is a second or subsequent one would, unless
the owner concedes this point, be invalid.

While it is true that the license plate is strictly speaking not a property right, it does not follow that it
may be removed or confiscated without lawful cause. Due process is a guaranty against all forms of
official arbitrariness. Under the principle that ours is a government of laws and not of men, every
official must act by and within the authority of a valid law and cannot justify the lack of it on the
pretext alone of good intentions. It is recalled that more than seventy years ago, the mayor of Manila
deported one hundred seventy prostitutes to Davao for the protection of the morals and health of the
city. This Court acknowledged his praiseworthy purpose but just the same annulled his unauthorized
act, holding that no one could take the law into his own hands. 3 We can rule no less in the case before
us.

We find that there is no inconsistency between LOI 43 and PD 1605, whichever is considered the
special law either because of its subject or its territorial application. The former deals with motor
vehicles that have stalled on a public road while the latter deals with motor vehicles that have been
deliberately parked in a no-parking area; and while both cover illegal parking of motor vehicles, the
offense is accidental under the first measure and intentional under the second. This explains why the
sanctions are different. The purpose of the LOI is to discourage the use of the public streets by
motor vehicles that are likely to break down while that of the decree is to penalize the driver for his
defiance of the traffic laws.

As it has not been shown that the private respondent's motor vehicle had stalled because of an
engine defect or some other accidental cause and, no less importantly, that it had stalled on the road
for a second or subsequent time, confiscation of the license plate cannot be justified under LOI 43.
And neither can that sanction be sustained under PD 1605, which clearly provides that "in case of
traffic violations, (even) the driver's license shall not be confiscated," let alone the license plate of the
motor vehicle. If at all, the private respondent may be held liable for illegal parking only and
subjected to any of the specific penalties mentioned in Section 3 of the decree.

We recognize the problem of the traffic policeman who comes upon an illegally parked and
unattended vehicle and is unable to serve a citation on the offending driver who is nowhere in sight.
But that problem is not addressed to the courts; it is for the legislative and administrative authorities
to solve. What is clear to the Court is that the difficulty cannot be avoided by the removal of the
license plate of the offending vehicle because the petitioner has not shown that this penalty is
authorized by a valid law or ordinance.

The petitioner complains that the respondent judge did not confine himself to the issue agreed upon
by the parties and made gratuitous accusations that were not only irrelevant but virtually condemned
the whole traffic force as corrupt. Assuming that this issue was indeed not properly raised at the trial,
the Court is nevertheless not inhibited from considering it in this proceeding, on the basis of its own
impressions on the matter.
This Court is not isolated from the mainstream of society and secluded in a world of its own,
unconcerned with the daily lives of the rest of the nation. On the contrary, the members of this Court
mix with the people and know their problems and complaints. And among these are the alleged
abuses of the police in connection with the issue now before us.

It is claimed that the removal of the license plates of illegally parked motor vehicles in Metro Manila
has become a veritable gold mine for some police officers. To be sure, we do not have hard,
provable facts at hand but only vague and unsubstantiated rumors that could be no more than
malicious and invented charges. Nevertheless, these accusations have become too prevalent and
apparently too persuasive that they cannot be simply swept under the rug.

The widespread report is that civilian "agents," mostly street urchins under the control and direction
of certain policemen, remove these license plates from illegally parked vehicles and later discreetly
suggest to the owners that these may be retrieved for an unofficial fee. This ranges from P50.00 to
P200.00, depending on the type of vehicle. If the owner agrees, payment is usually made and the
license plate returned at a private rendezvous. No official receipt is issued. Everything is done
quietly. The owners, it is said, prefer this kind of fast settlement to the inconvenience of an official
proceeding that may entail not only the payment of a higher fine but also other administrative
impositions, like attendance at a traffic seminar.

The Court is not saying that these reports are true nor is it stigmatizing the entire police force on the
basis of these unsubstantiated charges. But it does believe and stress that the proper authorities
should take official notice of these reports instead of blandly dismissing them as mere canards that
do not deserve their attention and concern. An inquiry is in our view indicated. The old adage that
where there's smoke there's fire is not necessarily true and can hardly be the rationale of a judicial
conclusion; but the Court feels just the same that serious steps should be taken, especially because
of the persistence of these charges, to determine the source of the smoke.

We realize the seriousness of our traffic problems, particularly in Metro Manila, and commend the
earnest efforts of the police to effect a smoother flow of vehicles in the public thoroughfares for the
comfort and convenience of the people. But we must add, as a reminder that must be made, that
such efforts must be authorized by a valid law, which must clearly define the offenses proscribed and
as clearly specify the penalties prescribed.

WHEREFORE, the petition is DISMISSED. The Court holds that LOI 43 is valid but may be applied
only against motor vehicles that have stalled in the public streets due to some involuntary cause and
not those that have been intentionally parked in violation of the traffic laws. The challenged decision
of the trial court is AFFIRMED in so far as it enjoins confiscation of the private respondent's license
plate for alleged deliberate illegal parking, which is subject to a different penalty. The temporary
restraining order dated February 6, 1990, is LIFTED.

SO ORDERED.

ALFREDO MALLARI SR. and ALFREDO MALLARI JR., petitioners, vs.

COURT OF APPEALS and BULLETIN PUBLISHING
CORPORATION, respondents.
 DECISION

BELLOSILLO, J.:

ALFREDO MALLARI SR. and ALFREDO MALLARI JR. in this petition for review
on certiorari seek to set aside the Decision of the Court of Appeals which reversed
[1]

the court a quo and adjudged petitioners to be liable for damages due to negligence as
a common carrier resulting in the death of a passenger.

On 14 October 1987, at about 5:00 o'clock in the morning, the passenger jeepney
driven by petitioner Alfredo Mallari Jr. and owned by his co-petitioner Alfredo
Mallari Sr. collided with the delivery van of respondent Bulletin Publishing Corp.
(BULLETIN, for brevity) along the National Highway in Barangay San Pablo,
Dinalupihan, Bataan. Petitioner Mallari Jr. testified that he went to the left lane of the
highway and overtook a Fiera which had stopped on the right lane. Before he passed
by the Fiera, he saw the van of respondent BULLETIN coming from the opposite
direction. It was driven by one Felix Angeles. The sketch of the accident showed that
the collision occurred after Mallari Jr. overtook the Fiera while negotiating a curve in
the highway. The points of collision were the left rear portion of the passenger jeepney
and the left front side of the delivery van of BULLETIN. The two (2) right wheels of
the delivery van were on the right shoulder of the road and pieces of debris from the
accident were found scattered along the shoulder of the road up to a certain portion of
the lane travelled by the passenger jeepney. The impact caused the jeepney to turn
around and fall on its left side resulting in injuries to its passengers one of whom was
Israel Reyes who eventually died due to the gravity of his injuries.

On 16 December 1987 Claudia G. Reyes, the widow of Israel M. Reyes, filed a

complaint for damages with the Regional Trial Court of Olongapo City against
Alfredo Mallari Sr. and Alfredo Mallari Jr., and also against BULLETIN, its driver
Felix Angeles, and the N.V. Netherlands Insurance Company. The complaint alleged
that the collision which resulted in the death of Israel Reyes was caused by the fault
and negligence of both drivers of the passenger jeepney and the Bulletin Isuzu
delivery van. The complaint also prayed that the defendants be ordered jointly and
severally to pay plaintiff P1,006,777.40 in compensatory damages, P40,000.00 for
hospital and medical expenses, P18,270.00 for burial expenses plus such amounts as
may be fixed by the trial court for exemplary damages and attorneys fees.

The trial court found that the proximate cause of the collision was the negligence of
Felix Angeles, driver of the Bulletin delivery van, considering the fact that the left
front portion of the delivery truck driven by Felix Angeles hit and bumped the left rear
portion of the passenger jeepney driven by Alfredo Mallari Jr. Hence, the trial court
ordered BULLETIN and Felix Angeles to pay jointly and severally Claudia G. Reyes,
widow of the deceased victim, the sums of P42,106.93 for medical
expenses; P8,600.00 for funeral and burial expenses; P1,006,777.40 for loss of
earning capacity; P5,000.00 for moral damages and P10,000.00 for attorneys fees. The
trial court also ordered N.V. Netherlands Insurance Company to indemnify Claudia G.
Reyes P12,000.00 as death indemnity and P2,500.00 for funeral expenses which when
paid should be deducted from the liabilities of respondent BULLETIN and its driver
Felix Angeles to the plaintiff. It also dismissed the complaint against the other
defendants Alfredo Mallari Sr. and Alfredo Mallari Jr.

On appeal the Court of Appeals modified the decision of the trial court and found no
negligence on the part of Angeles and consequently of his employer, respondent
BULLETIN. Instead, the appellate court ruled that the collision was caused by the
sole negligence of petitioner Alfredo Mallari Jr. who admitted that immediately before
the collision and after he rounded a curve on the highway, he overtook a Fiera which
had stopped on his lane and that he had seen the van driven by Angeles before
overtaking the Fiera. The Court of Appeals ordered petitioners Mallari Jr. and Mallari
Sr. to compensate Claudia G. Reyes P1,006,777.50 for loss of earning
capacity, P50,000.00 as indemnity for death and P10,000.00 for attorneys fees. It
absolved from any liability respondent BULLETIN, Felix Angeles and N.V.
Netherlands Insurance Company. Hence this petition.

Petitioners contend that there is no evidence to show that petitioner Mallari Jr.
overtook a vehicle at a curve on the road at the time of the accident and that the
testimony of Angeles on the overtaking made by Mallari Jr. was not credible and
unreliable. Petitioner also submits that the trial court was in a better position than the
Court of Appeals to assess the evidence and observe the witnesses as well as
determine their credibility; hence, its finding that the proximate cause of the collision
was the negligence of respondent Angeles, driver of the delivery van owned by
respondent BULLETIN, should be given more weight and consideration.

We cannot sustain petitioners. Contrary to their allegation that there was no evidence
whatsoever that petitioner Mallari Jr. overtook a vehicle at a curve on the road at the
time of or before the accident, the same petitioner himself testified that such fact
indeed did occur -

Q:.......And what was that accident all about?

A:.......Well, what happened, sir, is that at about that time 5:00 oclock in
that morning of October 14 while I was negotiating on the highway at
San Pablo, Dinalupihan, Bataan, I was then following a blue Ford Fierra
and my distance behind was about twenty (20) feet and then I passed that
blue Ford Fierra. I overtook and when I was almost on the right lane of
the highway towards Olongapo City there was an oncoming delivery van
of the Bulletin Publishing Corporation which bumped the left rear
portion of the jeepney which I was driving and as a result of which the
jeepney x x x turned around and fell on its left side and as a result of
which some of my passengers including me were injured, sir x x x x

Q:.......Before you overtook the Ford Fierra jeepney did you look x x x
whether there was any vehicle coming towards you?

A:.......Yes, sir.

Q:.......Did you see the Bulletin van or the Press van coming towards
you?

A:.......Yes, sir.

Q:.......At the moment the Ford Fierra xxx stop(ped) and in overtaking
the Fierra, did you not have an option to stop and not to overtake the
Ford Fierra?

A:.......Well, at the time when the Ford Fierra stopped in front of me I

slowed down with the intention of applying the brake, however, when I
saw the oncoming vehicle which is the Press van is very far x x x which
is 100 feet distance, x x x it is sufficient to overtake the Ford Fierra so I
overt(ook) it x x x x

Q:.......You said that you took into consideration the speed of the
oncoming Press van but you also could not estimate the speed of the
press van because it was dark at that time, which of these statements are
true?

A:.......What I wanted to say, I took into consideration the speed of the

oncoming vehicle, the Press van, although at the moment I could not
estimate the speed of the oncoming vehicle x x x x [2]
The Court of Appeals correctly found, based on the sketch and spot report of the
police authorities which were not disputed by petitioners, that the collision occurred
immediately after petitioner Mallari Jr. overtook a vehicle in front of it while
traversing a curve on the highway. This act of overtaking was in clear violation of
[3]

Sec. 41, pars. (a) and (b), of RA 4136 as amended, otherwise known as The Land
Transportation and Traffic Code which provides:

Sec. 41. Restrictions on overtaking and passing. - (a) The driver of a

vehicle shall not drive to the left side of the center line of a highway in
overtaking or passing another vehicle proceeding in the same direction,
unless such left side is clearly visible and is free of oncoming traffic for
a sufficient distance ahead to permit such overtaking or passing to be
made in safety.

(b) The driver of a vehicle shall not overtake or pass another vehicle
proceeding in the same direction when approaching the crest of a grade,
nor upon a curve in the highway, where the drivers view along the
highway is obstructed within a distance of five hundred feet ahead
except on a highway having two or more lanes for movement of traffic in
one direction where the driver of a vehicle may overtake or pass another
vehicle:

Provided That on a highway, within a business or residential district,

having two or more lanes for movement of traffic in one direction, the
driver of a vehicle may overtake or pass another vehicle on the right.

The rule is settled that a driver abandoning his proper lane for the purpose of
overtaking another vehicle in an ordinary situation has the duty to see to it that the
road is clear and not to proceed if he cannot do so in safety. When a motor vehicle is
[4]

approaching or rounding a curve, there is special necessity for keeping to the right
side of the road and the driver does not have the right to drive on the left hand side
relying upon having time to turn to the right if a car approaching from the opposite
direction comes into view.
[5]

In the instant case, by his own admission, petitioner Mallari Jr. already saw that the
BULLETIN delivery van was coming from the opposite direction and failing to
consider the speed thereof since it was still dark at 5:00 o'clock in the morning
mindlessly occupied the left lane and overtook two (2) vehicles in front of it at a curve
in the highway. Clearly, the proximate cause of the collision resulting in the death of
Israel Reyes, a passenger of the jeepney, was the sole negligence of the driver of the
passenger jeepney, petitioner Alfredo Mallari Jr., who recklessly operated and drove
his jeepney in a lane where overtaking was not allowed by traffic rules. Under Art.
2185 of the Civil Code, unless there is proof to the contrary, it is presumed that a
person driving a motor vehicle has been negligent if at the time of the mishap he was
violating a traffic regulation. As found by the appellate court, petitioners failed to
present satisfactory evidence to overcome this legal presumption.

The negligence and recklessness of the driver of the passenger jeepney is binding
against petitioner Mallari Sr., who admittedly was the owner of the passenger jeepney
engaged as a common carrier, considering the fact that in an action based on contract
of carriage, the court need not make an express finding of fault or negligence on the
part of the carrier in order to hold it responsible for the payment of damages sought by
the passenger. Under Art. 1755 of the Civil Code, a common carrier is bound to carry
the passengers safely as far as human care and foresight can provide using the utmost
diligence of very cautious persons with due regard for all the circumstances.
Moreover, under Art. 1756 of the Civil Code, in case of death or injuries to
passengers, a common carrier is presumed to have been at fault or to have acted
negligently, unless it proves that it observed extraordinary diligence. Further, pursuant
to Art. 1759 of the same Code, it is liable for the death of or injuries to passengers
through the negligence or willful acts of the formers employees. This liability of the
common carrier does not cease upon proof that it exercised all the diligence of a good
father of a family in the selection of its employees. Clearly, by the contract of
carriage, the carrier jeepney owned by Mallari Sr. assumed the express obligation to
transport the passengers to their destination safely and to observe extraordinary
diligence with due regard for all the circumstances, and any injury or death that might
be suffered by its passengers is right away attributable to the fault or negligence of the
carrier.

The monetary award ordered by the appellate court to be paid by petitioners to the
widow of the deceased passenger Israel M. Reyes of P1,006,777.50 for loss of earning
capacity, P50,000.00 as civil indemnity for death, and P10,000.00 for attorneys fees,
all of which were not disputed by petitioners, is a factual matter binding and
conclusive upon this Court.

WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals
dated 20 September 1995 reversing the decision of the trial court being in accord with
law and evidence is AFFIRMED. Consequently, petitioners are ordered jointly and
severally to pay Claudia G. Reyes P1,006,777.50 for loss of earning
capacity, P50,000.00 as civil indemnity for death, and P10,000.00 for attorneys fees.
Costs against petitioners.

SO ORDERED.