Philippine National Bank vs. CA, 337 SCRA 381, G.R. No. 128661, August 8, 2000
Subject: Transportation Law
FACTS
To finance the
acquisition of 7 shipping vessels, the Philippine International Shipping
Corporation (PISC) applied for and was granted by National Investment
Development Corporation (NIDC) guaranty accommodations. As security for these
guaranty accommodations, PISC executed chattel mortgages on the vessels to be
acquired by it.
Meanwhile, PISC
entered into a contract with Hong Kong United Dockyards, Ltd. for the repair
and conversion of one of the vessels, M/V Asean Liberty. The Central Bank of
the Philippines authorized PISC to open with China Banking Corporation (CBC) a
standby letter of credit for US$545,000 in favor of Citibank, N.A. to cover the
repair and partial conversion of the vessel M/V Asean Liberty.
PISC executed an
Application and Agreement for Commercial Letter of Credit for US$545,000 with
CBC in favor of Citibank. CBC then issued its Irrevocable Standby Letter of
Credit forUS$545,000 in favor of Citibank for the account of PISC. PISC
executed a promissory note for US$545,000 in favor of Citibank pursuant to the
Loan Agreement between PISC and Citibank.
Upon failure of
PISC to fulfill its obligations, Citibank sent CBC a letter drawing on the
Letter of Credit. CBC then instructed its correspondent Irving Trust Co. to pay
to Citibank the amount of US$242,225. Subsequently, for failure of PISC to
settle its obligations under the guaranty accommodations, the Philippine
National Bank (PNB) conducted an auction sale of the mortgaged vessels. NIDC
emerged as the highest bidder in these auctions. PISC, claiming that the
foreclosure sale of its mortgaged vessels was illegal and irregular, instituted
a civil case for the annulment of the foreclosure and auction sale. CBC filed a
complaint in intervention for recovery upon a maritime lien against the proceeds
of the sale of the foreclosed vessels.
ISSUE
Whether or not
CBC’s claim as evidenced by its Irrevocable Letter of Credit is in the nature
of a maritime lien under the provisions of P.D. No. 1521.
RULING
Yes, CBC’s claim as
evidenced by its Irrevocable Letter of Credit is a maritime lien under the
provisions of P.D. No. 1521.
Under the
provisions of P.D. No. 1521, any person furnishing repairs, supplies, or other
necessities to a vessel on credit will have a maritime lien. Such maritime
lien, if it arose prior to the recording of a preferred mortgage lien, shall
have priority over the said mortgage lien.
In this case, it
was Hong Kong 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. CBC, however, stands as 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 CBC was called upon by Citibank to exercise its duties under
the Stand by Letter of Credit.
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