Philippine Trust Co. v. Smith Navigation Co.
REITERATIONFacts
The Antecedents: The defendant Smith Navigation Company executed a mortgage on two vessels, "Ethel Conklin" and "Ethel Edwards," to secure a P66,000 debt to the plaintiff Philippine Trust Company. The mortgage was registered. The defendant failed to pay interest and defaulted on the loan terms. The intervenor El Varadero de Manila performed repairs on these vessels from June 1933 to June 1934, amounting to P11,486.78. These repairs were not registered, and the plaintiff was not notified prior to their commencement, although the defendant claimed a verbal agreement and a practice of not notifying for Bureau of Customs ordered repairs. The intervenors Ramon L. Verzosa et al. claimed unpaid salaries as officers and crew of the "Ethel Conklin." Procedural History: The Court of First Instance of Manila dismissed the intervention of El Varadero de Manila and ordered the sale of the mortgaged vessels, with the crew's claim to be paid first, followed by the plaintiff's mortgage credit. El Varadero de Manila appealed. The Petition: The intervenor-appellant El Varadero de Manila assigned four alleged errors committed by the trial court, primarily concerning the preference of its claim for repairs over the plaintiff's mortgage credit.
Issue(s)
Whether the claim for repairs made by El Varadero de Manila on the mortgaged vessels has preference over the mortgage credit of the Philippine Trust Company. Whether the lack of registration of the repairs contract and the alleged failure to notify the mortgagee of the repairs bar El Varadero de Manila from claiming preference.
Ruling
The appealed judgment is reversed. El Varadero de Manila is entitled to be paid the sum of P11,486.78 for repairs, with legal interest, from the proceeds of the sale of the vessels, after satisfying the claim of the other intervenors (crew), and before the plaintiff Philippine Trust Company is paid.
Ratio Decidendi
On the preference of credit for repairs over mortgage credit: The Court held that credits for repairs made on personal property, such as vessels, are preferred to the extent of the value of the property under Article 1922, subsection 1, in connection with Article 1926 of the Civil Code. Although the Code of Commerce provides for preference of credits arising from vessel repairs under Article 580, subsection 8, this preference requires the contract to be recorded in the registry of vessels. Since the repairs made by El Varadero de Manila were not registered, it could not invoke the preference under the Code of Commerce. However, the Court found the provisions of the Civil Code applicable as supplementary law. The Court reasoned that the vessels, being personal property, fall under the purview of Article 1922, granting preference to credits for their repair. This preference excludes other credits, such as the mortgage credit of the plaintiff, to the extent of the value of the property. Therefore, El Varadero de Manila's claim for repairs is preferred over the mortgage credit. On the effect of lack of registration and notice: The Court ruled that the stipulation in the chattel mortgage requiring the mortgagor to notify the mortgagee of any repairs is not binding on the repairman, El Varadero de Manila, as it was not a party to the mortgage contract. The Court applied the doctrine from Pacific Commercial Co. v. Webb and Falcon, stating that a repairman is not bound by terms in a chattel mortgage regarding encumbrances for subsequent repairs without the mortgagee's consent, absent personal knowledge of such provisions. In this case, it was not established that El Varadero de Manila had personal knowledge of the stipulation requiring notification to the Philippine Trust Company before undertaking the repairs. Consequently, the lack of notification did not bar El Varadero de Manila from claiming preference for its repair services.
Main Doctrine
Credits for repairs made on vessels, even if not registered, enjoy preference over mortgage credits under Article 1922, subsection 1, in connection with Article 1926 of the Civil Code, provided the repairman had no personal knowledge of any stipulation in the mortgage requiring prior notice to the mortgagee.