CHAPTER 8

SHIP MORTGAGE AND MARITIME LIENS

1. APPLICABLE LAWS AND RULES. Mortgage and

other encumbrances over vessels are governed by the provisions
of Presidential Decree (PD) 1521, otherwise known as the Ship
Mortgage Decree of 1978. The same law as well as Section 12 of
Executive Order No. 125 as amended is being implemented with
respect to annotation/cancellation of mortgages and transfer of
rights and other encumbrances of vessels by Memorandum Circular
No. 100 which was issued by the MARINA in April, 1995.
a. The provisions of PD No. 1521 with respect to preferred
mortgage prevail over the Civil Code provisions on mortgage as well
as the provisions of the Code of Commerce. General legislation must
give way to special legislation on the same subject, and generally
be so interpreted as to embrace only cases in which the special
provisions are not applicable. 1
1.01. THE SHIP MORTGAGE DECREE OF 1978. The
complete text of the provisions of Presidential Decree No. 1521
is provided hereunder.

PRESIDENTIAL DECREE NO. 1521

THE SHIP MORTGAGE DECREE OF 1978
WHEREAS, it is the declared policy of the State to
accelerate the growth and development of the shipping
industry;
WHEREAS, due to the heavy capital requirement
for ship acquisition and operation, the shipping industry

1
Poliand Industrial Ltd. v. NDC, 467 SCRA 500, August 22, 2005.

316
 PART ll - MAIUTIM'E LAW
Ch apte r 8 - S hip Mor tgag e and Mar itim 317
e Lien s

has . turned to financial institutions, bot

foreign , for assistance; h local and

WHEREAS, Philippine laws on ship mortga

ge have
not been _responsive to the needs of ves
sel financing
such tha t 1t has deterred the extensions
of needed loans
to the ind ust ry;

WHEREAS, there is a recognized need for

extend-
ing the benefits accorded to overseas
shipping under
Presidential Decree No. 214 to domestic
shipping.
NOW, THEREFORE, I, FERDINAND
E. MARCOS,
President of the Philippines, by virtue
of the powers
vested in me by the Constitution, do her
eby ord er the
ena ctm ent of a shi p mortgage law as follo
ws:
SECTION 1. Title. - This Decree shall be
known as
"The Shi p Mortgage Decree of 1978."
SECTION 2. Who ma y Constitute a Ship
Mortgage.
- Any citizen of the Philippines, or any
association or
cor por atio n organized under the laws of
the Philippines,
at lea st sixt y per cent of the capital of
which is owned
by citiz ens of the Philippines may, for
the purpose of
fina ncin g the con stru ctio n, acquisition
, purchase of
ves sels or init ial operation of vessels, free
ly con stit ute
a mo rtga ge or any oth er lien or encumbra
nce on his or
its ves sels and its equipment with any
bank or oth er
fina ncia l ins titu tion s, dom est ic or foreign.
SECTION 3. Mortgage of Vessel of
Domestic
Ow ner ship ; records. -
(a) No mortgage, whi ch at the time suc h
mortgage
is made incl ude s a vessel of dom est ic own
ers hip as this
term is def ine d in Presidential Decree
No. 761, or any
por tion thereof, as the who le or any par
t of the pro per ty
mortgaged, sha ll be valid, in respect
to suc h vessel,
against any per son oth er than the mortga
gor, his hei r
or assign, and a person having actual
not ice thereof,
until suc h mo rtga ge is recorded in the
offi ce of the
Philippine Coa st Guard of the por t of doc
um ent atio n of
such vessel.
(b) The Coast Guard Dis tric t or Sta
tion Com-
mander sha ll rec ord mo rtga ges delivered
to him, in the
318 ESSENTIALS OF TRANSPORTATION AND PUBL IC
UTIL ITIES LAW

order of their reception, In books to be kept for that pur-

pose and indexed to show -
(1) The name of the vessel;
(2) The names of the parties to the mortgage;
(3) The time and date of reception of the
instrument;
(4) The interest in the vessel so mortgaged;
(5) The amount and date of maturity of the
mortgage;
(6) Name, citizenship, nationality and resi-
dence of owner; and
(7) Any material change of condition in
respect to any of the preceding items.
A copy of the instrument or mortgage shall be
furnished the Central Bank of the Philippines.
SECTION 4. Preferred Mortgages. -
(a) A valid mortgage which at the time it is made
ip
includes the whole of any vessel of domestic ownersh
shall have, in respect to such vessel and as of the
date of recordation, the preferred status given by the
provisions of Section 17 hereof, if -
(1) The mortgage is recorded as provided in
Section 3 hereof;
(2) An affidavit is filed with the record of such
mortgage to the effect that the mortgage is made in
good faith and without any design to hinder, delay,
or defraud any existing or future creditor of the
mortgagor or any lien or of the mortgaged vessel;
(3) The mortgage does not stipulate that the
mortgagee waives the preferred status thereof.
(b) Any mortgage which complies with the above
For
conditions is hereafter called a "preferred mortgage."
al
purposes of this Decree, a vessel holding a Provision
el
Certificate of Philippine Registry is considered a vess
of
of domestic ownership such that it can be subject
is
preferred mortgage. The Philippine Coast Guard
►

PART II - MARITIME LAW 319

Chapter 8 - Ship Mortgage a nd Maritime Liens

hereby authorized. to . .
enter a vessel hold,·ng a Prov1s1on
'fi . . al
Cert, 1cate of Ph11tppme Registry in the Reg,stry . of
Vessels and to record any mortgage executed thereon.
Such mortgage s_hall have the preferred status as of the
date of recordat,on upon compliance with the above
con d ·t·
I ions.

(c) There shall be endorsed upon the documents

of a vessel covered by a preferred mortgage -
(1) The names of the mortgagor and
mortgag ee;

(2) The time and date the endorsement is

made;
(3) The amount and date of maturity of the
mortgage; and
(4) Any amount required to be endorsed
by the provisio ns of paragraphs {e) or (f) of this
Section.
{d) Such endorsement shall be made (1) by the
Coast Guard District or Station Commander of the port
of documentation of the mortgaged vessel, or (2) by the
Coast Guard District or Station Commander of any port
in which the vessel is found, if such Coast Guard Dis-
trict or Station Commander is directed to make the en-
dorsem ent by the Coast Guard District or ·station Com-
mander of the port of documentation. The Coast Guard
District or Station Commander of the port of documen-
tation shall give such direction by wire of letter at the
request of the mortgagee and upon the tender of the
cost of commu nication of such direction. Whenever any
new docume nt is issued for the vessel, such endorse-
ment shall be transfer red to and endorsed upon the new
document by the Coast Guard District or Station Com-
mander.
In .the case of a vessel holding a provincial certifi-
cate of Philippine Registry, the endorsement shall be
made by the Philippine consul abroad upon direction by
wire or letter from the Maritime Industr y Authori ty at the
request of the mortgagee and upon tender of the cost of
communication of such direction. A certificate of such
 T/\'l' ION /\NI> PUB LI C
320 ESSENTIALS OF TR AN SPOH
UT rI ,JT I EH LA W

ce , tim e an d desc rip tio n of

endorse ment , giving the pla of
rec ord ed wi th the re co rd s
th e en do rse ment shall be
ed at the Ph ilip pin e Consul-
registration to b~ maintain
ate. pr op er ty oth er
(e) A mortgage which inc lud es
held a pr efe rre d mo rtg ag e
than a vessel shall not be
fo r the separate dis ch ar ge
unless the mortgage provides
yment of a sp ec ifie d po rti on
of such property by the pa
mo rtg ag e ind eb ted ne ss . If a pr efe rre d mo rtg ag e
of the
pro vid es for the se pa rat e discharge, the am ou nt of
so
po rtio n of su ch pa ym en t shall be en do rse d up on the
the
documents of the vessel.
inc lud es mo re than
(f) A preferred mortgage
r the separate dis ch ar ge of
one vessel and provides fo
t of a po rti on of mo rtg ag e
each vessel by the paymen
of su ch po rti on of su ch
indebtedness, the amount
upon the do cu me nts of the
payment shall be endorsed
e does no t pr ov ide fo r the
vessel. In case such mortgag be
ssel and the ve ss el is to
separate discharge of a ve
tri ct co ur t of the Ph ilip pin es
sold upon the order of a dis
the co ur t sh all de ter mi ne
in a su it in rem in admiralty,
e ind eb ted ne ss inc re as ed
the portion of the mortgag t
, in the op ini on of the co ur
by 20 per centum (1) which
the ve ss els co ve re d by th~
the approximate value of all el
payment of wh ich the vess
mortgage, and (2) upon the
mortgage.
shall be discharged from the
ofMo rtg ag e; ex hib itio n.
SECTION 5. Ce rtif ied Copies
he Co as t Gu ard Di str ict or St ati on Co mm an de r up on
-T
co rdin~ of a pre fer red mo rtg ag e sh all de liv er tw o
the ~e ,
mo rtg ag or wh o sh all place
certified cop1e~ ~hereof to the
ain, on e co py on bo ar d the
and use due d1hgence to ret a
wh ich sh all be po ste d in
mortg~ged vessel no tic e of
d cause su ch co py an d the
~onsp1cuous place thereat an r
cau nm ents of the ve ss el to be ex hib ite d by the ma ste
too
Y persoan ma having b ~-s·mess wi.th the ve ss el, wh ich
give rise to rif
up on the ve ss el or to the
sale, conveyance ,me ,en r of
the vessel shall ' or mo rtg ag e the re of. The ma ste
th qu es t of an y su ch person,
exhibit to him thup ;n e re
ts of the ve ss el pla ce d on
board thereof. r:e :c u~ en a
ment of th is Se cti on tha t
copy of a preferred qu1reag e be pla ce d an d retained
mo rtg
 PART U - MARITJME LAW 321
Cha pter 8 - Ship Mortgage and Maritime Liens

on board the mortgaged vessel shall not apply in the

case of a mortgaged vessel which is not self-propelled
(including but not limited to, barges, scores, lighters,
and car floats).
If the master of the vessel willfully fails to exhibit
the documents of the vessel or the copy of any preferred
mortgage thereof, the Philippine Coast Guard may
suspend or cancel the master's license.
SECTION 6. Prior and Subsequent Maritime Liens
on Mortgaged Vessel. - The mortgagor (1) shall, upon
request of the mortgagee, disclose in · writing to him
prior to the execution of any preferred mortgage, the
existence of any maritime lien, prior mortgage, or other
obligation or liability upon the vessel to be mortgaged,
that is known to the mortgagor, and (2) without the
consent of the mortgagee, shall not incur, after the
execution of such mortgage and before the mortgagee
has had a reasonable time in which to record the
mortgage and have indorsements in respect thereto
made upon the documents of the vessel, any contractual
obligation creating a lien upon the vessel other than a
lien for wages of stevedores when employed directly by
the owner, operator, master, ship's husband, or agent
of the vessel, for wages of the crew of the vessel, for
general average, or for salvage, including contract
salvage, in respect to the vessel, tonnage dues and all
other charges (not to exceed P20,000) of the Philippine
Government in respect to the vessel.
A mortgagor, who, with intent to defraud, violates
the above provision and if the mortgagor is a corporation
or association, the president or other principal
executive officer of the corporation or association,
shall be punished by a fine of not, more than P5,000
or imprisonment of not more than two years, or both.
The mortgage indebtedness shall thereupon become
immediately due and payable at the election of the
mortgagee.
SECTION 7. Record of Notice of Claim of Lien on
Mortgaged Vessel; discharge of lien. -
(a) The Coast Guard District or Station Com-
mander of the port of documentation shall, upon the
322 ESSENTlALS OF TRANSPORTATION AND PUBLIC
UTILITIES LAW

request of any person, record notice of his claim of a

lien upon a vessel covered by a preferred mortgage, to-
gether with the nature, date of creation, and amount of
the lien, and the name and address of the person. Any
person who has caused notice of his claim of lien to be
so recorded shall, upon a discharge in whole or in part
of the indebtedness, forthwith file with the Coast Guard
District or Station Commander a certificate of such dis-
charge. The Coast Guard District or Station Commander
shall thereupon record the certificate.
(b) The mortgagor upon a discharge in whole or
in part of the mortgage indebtedness, shall forthwith file
with the Coast Guard District or Station Commander for
the port of documentation of the vessel, a certificate of
such discharge duly executed by the mortgagee. Such
Coast Guard District or Station Commander shall there
upon record the certificate. In case of a vessel covered
by a preferred mortgage, the Coast Guard District or
Station Commander at the port of documentation shall
endorse upon the documents of the vessel, or direct the
Coast Guard District or Station Commander at any port
in which the vessel is found, to so endorse, the fact of
such discharge.
A certificate of such endorsement, giving the time,
place and description of the endorsement, shall be
recorded with the Philippine Coast Guard. Where the
endorsement is made by a person other than the Coast
Guard District or Station Commander such certificate
shall be promptly forwarded to the Philippine Coast
Guard.
SECTION 8. Conditions Precedent to Record;
interest on Preferred Mortgage. -
(a) No mortgage shall be recorded unless it
states the interest of the mortgagor in the vessel, and
the interest so mortgaged.
(b) No mortgage, notice of claim of lien, or
certificate of discharge thereof, shall be recorded unless
previously acknowledged before the Coast Guard District
or Station Commander of the port of documentation or a
notary public or other officer authorized by a law of the
 P:\ H'I' 11 l\ 1.-\l·n 'l'l l\m I.A \\'
l ' h :,pk r 0 ~ h ip i\l1irt ~1,>.'t' :i nd i\lnrll im t' l ,il 1 11 :-:

Philippines to take ackn owledgment of deeds or before

a Philippine consul or con sular agent.
(c) In case of a change In the port of documenta-
tion of a vessel of the Phlllpplnes, no mortgage shall be
recorded at the new port of documentation unless there
is furn ished to the Coast Guard District or Station Com-
mander of such port, together with the copy of the mort-
gage to be recorded, a certified copy of the record of the
vessel at the former port of documentation furnished by
the Coast Guard District or Station Commander of such
port. The Coast Guard District or Station Commander
at the new port of documentation is authorized and di-
rected to record such certified copy.
SECTION 9. Inspection of the Coples for Records;
fees. - Each Coast Guard District or Station Commander
shall permit records made under the provisions of
this decree to be inspected during office hours, under
such reasonable regulation as the Philippine Coast
Guard may establish. Upon the request of any person
the Coast Guard District or Station Commander shall
furnish him from the records of the Coast Guard's office:
(1) a certificate setting forth the names of the owners
of any vessel, the interest held by each owner, and the
material facts as to any mortgage covering, or any lien
or other encumbrance upon, a specified vessel, (2) a
certified copy of any mortgage, notice of claim of lien, or
certified copy discharge In respect to such vessel, or (3)
a certified copy as required by subsection (c) of Section
8 hereof. The Philippine Coast Guard shall collect the
fees as provided for under existing laws and regulations
for any mortgage recorded, or any certificate or certified
copy furnished by it.
SECTION 10. Lien of preferred Mortgage; fore-
closure; jurisdiction; procedure. -A preferred mortgage
shall constitute a llen upon the mortgaged vessel In
the amount of the outstanding mortgage Indebtedness
secured by such vessel. Upon the default of any term or
condition of the mortgage such llen may be enforced by
the mortgagee by suit In remaining admiralty, wherein
the vessel Itself may be made a partly defendant and be
324 ESSEN TIALS OF TRANSPORTATION AND PUBLIC
UTILI TIES LAW

arrested in the manner as provided in Section 11 hereof.

Original jurisd iction of all such suits is granted to the
Court of First Instance of the Philippines exclusively. In
addition to any notice by publication, actual notice of
commencement of any such suit shall direct, to: (1) the
master, other ranking officer, or caretaker of the vessel,
and (2) any person who has recorded a notice of claim
of an undischarged lien upon the vessel, as provided in
Section 7 hereof, unless after search by the mortgage
satisfactory to the court, such mortgagor, master, other
ranking officer, caretaker, or claimant is not found
within the Philippines. Failure to give notice to any such
person, as required by this Section, shall be liable to
such person for damages in the amount of his interest
in the vessel terminated by the suit.
In case of judic ial foreclosure as provided herein,
the provi sions of Rule 68 of the New Rules of Court, if
not incon siste nt herewith, shall apply.
The lien of a preferred ship mortgage may also be
enforced by a suit in rem in admiralty or otherwise in
any foreign coun try in which the vessel may be found
pursuant to the procedure of said coun try for the
enforcement of ship mortgages cons titutin g maritime
liens on vessels documented under the laws of said
country.
SECTION 11. Arres t of Vessels. - Upon the
filing of the petition for the judic ial foreclosure of a
Preferred Ship Mortgage, or immediately thereafter, the
appli cant may apply ex-parte for an order for the arrest
of the mortgaged vessel or vessels and the judge shall
immediately issue the same, provided that it is made to
appear by affida vit of the applicant, or of some other
person who personally knows the facts that a default
in the mortgage has occurred and that applicant files a
bond executed to the adverse party in an amount to be
fixed by the judge, not exceeding the applicant's claim,
cond itione d that the latter will pay all the costs which
may be adjudged to the adverse party and all damages
which he may susta in by reason of such arrest, if the
court shall finall y adjudge that the applicant was not
entitled thereto.
i..u

PAI-f l' 11 - MAH.l' l'l M I•'. I ,AW

Clrnpt er H •- f-l hip Mort.g 11 gt' 1111d M11ril 1111t • Li, ,11 ~

SECTION 12. Disch arge of Orde r of Arres t; Coun ter-

bond . - At any time after an order of arrest has been
granted, the party whos e vessel or vessels had been
arrested, or the perso n appearing in his beha lf, may,
upon reasonable notic e to the applicant, apply to the
judge who grant ed the order, or to the judge of the court
in which the actio n is pend ing, for an orde r disch argin g
the orde r of arrest. That judge shall orde r the disch arge
of the arres t if a cash depo sit is made, or coun terbo nd
executed to the credi tor is filed, on beha lf of the adverse
party, with the clerk or judge of the court where the
appli catio n is made in an amou nt doub le the value of
the claim to secure the paym ent of any judgm ent that
the credi tor may recov er in the action. Upon the filing
of such coun terbo nd, copy there of shall forth with be
serve d on the credi tor or his lawyer. Upon disch arge of
the orde r of arrest, the prope rty arrested or seized shall
be deliv ered to the party maki ng the depo sit or givin g the
coun terbo nd, or the person appearing in his behalf, the
depo sit or coun terbo nd aforesaid stand ing in place of
the vessel or vessels released. Shou ld such depo sit or
coun terbo nd for any reason be found to be, or beco me
insuf ficien t, and the party furnis hing the same falls to
file an addit ional co-co unter bond , the attac hing credi tor
may apply for a new order of arres t or seizure.
SECTION 13. Discharge of Orde r of Arres t for
Impro per or Irreg ular Issuance. - The party whos e
vessel/s has been arrested may also, at any time eithe r
before or after the release of the arres ted vessel, or
before any arres t or seizure has been effected, upon
reasonable notic e to the creditor, apply to the Judge
who granted the order, or to the judge of the court In
which the actio n is pending, for an orde r to disch arge
the order of arres t or seizure on the grou nd that the
same impro perly or irreg ularly issued. After hearing, the
judge shall order the disch arge of the orde r of arres t or
seizure if it appears that it was impro perly or Irreg ularly
issued and the defec t is not cured forth with.
SECTION 14. Extra judlc ial Foreclosure. - The
provi sions of the Chattel Mortgage Law on the reme dy of
extra-judicial forec losur e of mortg ages in so far as they
326 F,8SE NTIAL S OF TH,AN HPOH 'J'AT JON AN I> PUBL IC
U'J' JLJT JES LAW

are not incon siste nt herew ith shall still apply. For the
purp ose of takin g poss essio n of the vess el_or vessels,
the forec losin g credi tor may secu re from a Judge of the
Cour t of First Insta nce of the provi nce wher e the vesse l
may be found or wher e the cred itor or debt or resid es an
orde r for the arres t or seizu re of the vess el. Upon such
orde r of seizure or arres t being issue d, the sher iff shall
imme diate ly take poss essio n of the vess el or vess els
for the purp ose of forec losur e and sale. The vess el may
only be released in acco rdan ce with the prov ision s
of Secti on 13 of this Act, or when the debt or pays the
outst andin g oblig ation .
SECTION 15. Fore ign Ship Mort gage s. -As used in
Secti ons 10 to 18 hereo f, the term "pref erred mort gage "
shall inclu de, in addit ion to a prefe rred mort gage
made pursu ant to the prov ision s of this Decr ee, any
mortg age, hypo theca tion, or simil ar char ge creat ed
as secu rity upon any docu ment ed forei gn vess el if
such mortg age, hypo theca tion, or simil ar char ge has
been duly and valid ly exec uted in acco rdan ce with the
laws of the forei gn natio n unde r the laws of whic h the
vess el is docu ment ed and has been duly regis tered in
acco rdan ce with such laws in a publ ic regis ter eithe r at
the port of regis try of the vess el or at a centr al office ; and
the term "pref erred mort gage lien" shall also inclu de the
lien of such mort gage , hypo theca tion, or simil ar charg e:
Provided, however, That such "pref erred mort gage lien"
in the case of a forei gn vess el shall be subo rdina te
to marit ime liens for repa irs, supp lies, towa ge, use
of dryd ock or mari ne railw ay, or othe r nece ssari es,
perfo rmed or supp lied in the Phili ppine s.
SECTION 16. Rece iver in Fore closu re; poss essio n
by sheriff. - In any suit in rem in adm iralty for the
enfor ceme nt of the prefe rred mort gage lien, the cour t
may appo int a rece iver and, in its discr etion autho rize
the recei ver to oper ate the mort gage d vess el. The sher iff
may be _authorized and direc ted by the cour t to take
poss essio n of the mort gage d vess el notw ithst andi ng
th e fact that the vess el is in the poss essio n or unde r the
cont~ol of any pers on claim ing a poss esso ry comm on
law hen .
 PAHT II - M/\ll lT IM I•'. LAW :J27
Clrn pte r R - Ship Mnrtg11 g(' nnd M nri t i rrn' Li emi

SECTION 17. Preferred Maritime Lien, Priorities,

Other Liens. - (a) Upon the sale of any mortgaged vessel
in any extrajudiclal 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 in 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) crew's wages; (3)
general average; (4) salvage; including contract salvage;
(5) maritime liens arising prior in time to the recording of
the preferred mortgage; (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 and Encumbrances of Vessels in the port of
documentation.
SECTION 18. Suit in Personam in Admiralty on
Default. -
(a) Upon the default of any term or condition of a
preferred mortgage upon a vessel, .the mortgagee may,
in addition to all other remedies granted by this Decree,
bring suit in personal in admiralty in a district court of
the Philippines, against the mortgagor for the amount
of the outstanding mortgage indebtedness secured
by such vessel or any deficiency in the full payment
thereof.
(b) This Decree shall not be construed, in the case
of a mortgage covering, in addition to vessels, realty or
personality other than vessels, or both, to authorize the
32~ ESSENT1Al $ OF' TRANSPORTAT lON AND PUBLIC
UTll ,lT l ES J,/\W

enforcement by suit in rem in admiralty of the rights of

the mortgage In respect to such realty or personality
other than vessels.
SECTION 19. Surrender of Documents; termination
of mortgagee's interest; sale of mortgaged vessel. -
(a) The documents of a vessel of the Philippines
covered by a preferred mortgaged may not be surren-
dered (except in the case of the forfeiture of the ves-
sel or its sale by the order of any court of the Philip-
pines or any foreign country) without the approval of the
Maritime Industry Authority. The Administrator shall not
grant such approval without the mortgagee's consent.
(b) The interest of the mortgage in a vessel of
the Philippines covered by a mortgage, shall not be
terminated by the forfeiture of the vessel for a violation
of any law of the Philippines, unless the mortgage
authorized, consented, or conspired to effect the
illegal act, failure, or omission which constituted such
violation. Neither shall the chance by the shipowner in
the use or character of the vessel or in the business of
the mortgagor, without the consent of the mortgagee,
nor the failure by the mortgagor to comply with the
provisions of Section 5 hereof affect the validity or
preference of the preferred ship mortgage as against
third persons.
(c) Upon the sale of any vessel of the Philippines
covered by a preferred mortgage in any extrajudicial
sale or by order of a district court of the Philippines in
any suit in rem in admiralty for the enforcement of a
maritime lien other than a preferred maritime lien, the
vessel shall be sold free from all pre-existing claims
thereon; but the court shall, upon the request of the
mortgagee, the plaintiff, or any intervenor, require the
purchase at such sale to give and the mortgagee to
accept a new mortgage of the vessel for the balance of
the term of the original mortgage. The conditions of such
new mortgage shall be the same, so far as practicable,
as those of the original mortgage and shall be subject to
the approval of the court. If such new mortgage is given,
the mortgagee shall not be paid from the proceeds of the

I
e1
.....

l'Al t' I' II MAIU 'l1IMl 1: LAW 329

( '. l1 11 pl.nr H Hlii p Mort.1411v,r : un d Mari ti me Li e n8

,ale and the amount payabl e as the purchase price shall

be held diminished In the amount of the new mortgage
Indebtedness.
(d) No vessel of domestic ownership shall be
mortgaged, nor, any rights under said mortgage shall be
assigned, to any person not a citizen of the Philippines
without the approval of the Maritime Industry Authority.
The penalties and sanctions provided for under
Commonwealth Act No. 606 shall apply in case of any
vlolatlon hereof.
(e) The foreclosure sale of vessels mortgaged
under the provisions of this Decree, whether judicia lly
or extrajudlclally, shall not require the approval of the
Maritime Industry Authority.
SECTION 20. Who May Bid in the Foreclosure
Sale. - The following persons are qualified to bid in the
foreclosure sale of the mortgaged vessel:
(a) Citizens of the Philippines or corporations
60% of the capital of which is owned by Filipino citizens.
(b) A foreign mortgagee or foreign national whose
country has diplomatic relations with the Philippines
or whose country grants reciprocal rights to Filipin o
citizens.
In case the purchaser is a foreign individual or entity,
the Phllipplne Coast Guard shall, upon presentation
of the certificate of sale, cancel the registration of the
vessel and Issue a certificate to that effect upon request.
SECTION 21 . Maritime Lien for Necessaries; per-
sons entitled to such lien. - Any person furnishing
repairs, supplies, towage, use of dry dock or marine
rallway, 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.
SECTION 22. Persons Authorized to Procure
Repairs, Supplies, and Necessaries. - The followi ng
330 ESSENTIALS OF TRANSPORTATION AND PUBLIC
UTILITIES LAW

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, ship's husband, master
or any person to whom the management of the vessel
at the port of supply is entrusted. No person tortiously
or unlawfully in possession or charge of a vessel shall
have authority to bind the vessel.
SECTION 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 character, 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 know, 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.
SECTION 24. Waiver of Right to Lien. - Nothing in
this Decree shall be construed to prevent the furnisher
of repairs, supplies, towage, use of dry dock or marine
railway, or other necessaries, or the mortgagee, from
waiving his right to a lien, or in the case of a preferred
mortgage lien, to the preferred status of such lien, at
any time by agreement or otherwise.
SECTION 25. Existing Mortgages Not Affected;
exception. - This Decree shall not apply (1) to any
existing mortgage, or (2) to any mortgage hereafter
placed at any vessel under an existing mortgage, so
long as such existing mortgage remains undischarged.
The Decree shall, however, apply to mortgages executed
pursuant to Presidential Decree No. 214, provided, that
no vested rights of third parties are affected thereby.
SECTION 26. Rules and Regulations by Philippine
Coast Guard and the Maritime Industry Authority. -
The Philippine Coast Guard and the Maritime Industry
Authority are hereby authorized to make such rules
 J'J\HT Jr - MJ\JU1'JMf•: LAW
Chupt<•r H Hhip MorlgHi{f! And Msiritimn 1,i,:n H

and regulations within their respective spheres of Juris-

diction, as they may deem necessary for the efficient
execution of the provisions of this Decree.
SECTION 27. Port of Documentation. - Whenever
in the Ship Mortgage Decree of 1978 the words "port of
documentatio n" are used, they shall be deemed to mean
the port of registry of the vessel.
SECTION 28. Instruments and Acts Val/dated. -
All mortgages of any vessel of any part thereof, and
all documentation s, recordations, indorsements and
indexing thereof, and proceedings incidental thereto
made or done, prior to the effectivity of this Decree
are declared valid to the extent they would have been
valid if the port or ports at which it should have been
documented in accordance with law; and this Section
is declared retroactive so as to accomplish such
validations: Provided, That nothing herein contained
shall be construed to deprive any person of any vested
right.
SECTION 29. Repealing Clause. - The provisions
of the New Civil Code, the Code of Commerce, the
Chattel Mortgage Law, the Revised Rules of Court and
of such other laws, decrees, executive orders, rules and
regulations which are in conflict or inconsistent with the
provisions of this Decree are hereby repealed, amended
or modified accordingly. If for any reason, any section,
subsection, sentence, clauses or term of this Decree
is held to be unconstitution al such decision shall not
affect the validity of the other provisions of this Decree.
SECTION 30. Effectivity. - This Decree shall take
effect upon its approval.
Done in the City of Manila, this 11th day of June,
in the year of Our Lord, nineteen hundred and seventy-
eight.

1.02. CODE OF COMMERCE PROVISIONS . Articles

580 to 584 of the Code of Commerce likewise deal with
preferred credit. These provisions are deemed modified and/
or repea]ed not only by the Civil Code but also by special laws.
For exam ple, Article 580 enumerates the preferred claims that
332 ESSEN'l'l ALA or TRAN SPOHT A'l'lON AN J) PUB LfC
UTJ LT'J'rn s LAW

should be satisfied in case of judicial sale of vesse l. However

2

Section 17 of the Ship Mortgage Decree is now applicable and

not Article 580 of the Code of Commerce.
a. Article 580, while providing for the order of payment
of creditors in the even t of sale of a vessel, had been repealed
by the perti nent provisions of Presi denti al Decree (P.D.) No.

ent of creditors
ARTICLE 580. In all judicial sales of any vessel for the paym
2
'
the following shall have preference in the order stated:
of an official
1. The credit in favor of the public treasu ry proven by means
certificate of competent authority.
sement
2. The judicial costs of the proceedings, according to an apprai
approved by the judge or court.
charges,
3. The pilotage charges, tonnage dues, and the other sea or port
intrus ted with the collect ion
proven by means of proper certificates of the officers
thereof.
any oth-
4. The salaries of the depositaries and keepers of the vessel and
until the sale,
er expenses for its preservation from the time of arrival at the port
nt verifie and
d
which appea r to have been paid or be due by virtue of an accou
approved by the judge or court.
the vessel
5. The rent of the warehouse where the rigging and stores of
have been taken care of, according to contract.
e, which
6. The salaries due the captain and crew during its last voyag
of the lists and
shall be verified by means of the liquidation to be made in view
Burea u of Mer-
of the books of account of the vessel, approved by the chief of the
and in his absenc e by the consu l or judge or
chant Marine, where there is one,
court.
captain may
7. The reimb ursem ent for the goods of the freight which the
has been ordered
have sold in order to repair the vessel, provided that the sale
ed in such cases,
through a judicial proceedings held with the formalities requir
and recorded in the certificate of registry of the vessel.
vendor, the
8. The part of the price which has not been paid to the said
of the vessel , when it
unpaid credits for mater ials and labor in the construction
ment the ves-
of
has not navigated, and those arising from the repair and equip
last voyage .
sels and from its provisioning with victuals and fuel during the
In order that the credits provided for in this subdiv ision may enjoy this
the regist ry of vessels,
preference, they must appea r by contracts recorded in
and said vessel
or if they were contracted for the vessel while on a voyage
be made with
has not return ed to the port where it is registered, they must
annot ated in the certificate of
the authorization requir ed for such cases and
regist ration of the vessel.
, and stores
9. The amou nt borrowed on bottomry on the hull, keel, tackle
contract executed
of the vessel before its depar ture, proven by mean s of the
vessel s; those borrowed during
according to law and recorded in the regist ry of
ing subdivision,
the voyage with the autho rizatio n mentioned in the preced
proven by the
satisfying the same requisites; and the insura nce premium,
r. . d
insurance policy or a certificate taken from the books of the broke
of the goods shippe
10. The indem nity due the shipp er for the value
ed for whi~~ th e
which were not delivered to the consignees, or for averages suffer
ation decision.
vessel is liable, provided that either appea r in a judicial or arbitr
 PART ll - MARITIME LAW 333
Chapte r 8 - Ship Mortgage and Maritim e Liens

1521, otherwise known as the Ship Mortgage Decree of 1978.

In particula r, Article 580 provides that in case of the judicial
sale of a vessel for the payment of creditors, the debts shall
be satisfied in the order specified therein. On the other hand,
Section 17 of P.D. No. 1521 also provides that in the judicial or
extrajudi cial sale of a vessel for the enforcement of a preferred
mortgage lien constitut ed in accordance with Section 2 of P.D.
No. 1521, such preferred mortgage lien shall have priority over
all pre-existing claims against the vessel, save for those claims
enumera ted under Section 17, which have preference over
the preferred mortgage lien in the order stated therein. Since
P.D. No. 1521 is a subseque nt legislation and since said law in
Section 17 thereof confers on the preferred mortgage lien on the
vessel superiori ty over all other claims, thereby engender ing
an irreconcilable conflict with the order of preference provided
under Article 580 of the Code of Commerce, it follows that
the Code of Commerce provision is deemed repealed by the
provision of P.D. No. 1521, as the posterior law.

ARTICLE 581. If the proceeds of the sale should

not be sufficient to pay all the creditors included in one
number or grade, the residue shall be divided among
them pro rata.
ARTICLE 582. After the bill of the judicial sale at
public auction has been executed and inscribed in the
registry of vessels, all the other liabilities of the vessel in
favor of the creditors shall be considered extinguished.
But if the sale should have been voluntary and
should have been made while the vessel was on a
voyage, the creditors shall preserve their rights against
the vessel until it returns to the port of her registry,
and three months after the inscription of the sale in the
registry of vessel or the arrival.
ARTICLE 583. If while on a voyage the captain
should find it necessary to contract one or more of
the obligations mentioned in subdivisions 8 and 9 of
Article 580, he shall apply to the judge or court if he is
in Philippine territory, and otherwise to the consul of the
Republic of the Philippines, should there be one, and,
in his absence, to the judge or court or proper local
authority, presenting the certificate of the registration
334 F:SSEN'l'l/\L S oF TRANSPOR TATION /\NU PUHLJ C
l J'J'I Ll'l'JE8 LAW

sheet treated of In Article 612 and the Instruments

proving the obligation contracted.
The judge or court, the consul, or the local
authority, as the case may be, in view of the result of
the proceedings instituted, shall make a temporary
memorandum of their result in the certificate, in order
that it may be recorded in the registry when the vessel
returns to the port of its registry, or so that it can be
admitted as a legal and preferred obligation in case of
sale before its return, by reason of the sale of the vessel
on account of a declaration of unseaworthiness.
The omission of this formality shall make the cap-
tain personally liable for the credits prejudiced on his
account.
ARTICLE 584. The vessels subject to liability for
the credits mentioned in Article 580 may be attached and
judicially sold in the manner prescribed in Article 579, in
the port in which they may be found, at the instance of
any of the creditors; but if they should be loaded and
ready to sail, the attachment may not be effected except
for debts contracted to prepare and provision the vessel
for the same voyage, and even then the attachment
shall be dissolved if any person interested in its sailing
should give a bond for the return of the vessel within
the period fixed in the certificate of navigation binding
himself to pay the indebtedness insofar as it may be
legal, should it fail to do so, even if this failure be due to
fortuitous event.
For debts of any other kind whatsoever not com-
prised within the said Article 580, the vessel may be
- attached only in the port of her registry.

1.03. HISTORY OF SHIP MORTGAGE DECREE. 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." "It is patterned closely from the U.S. Ship Mortgage
Act of 1920 and the Liberian Maritime Law relating to preferred
mortgages. Notably, Sections 21, 22 and 23 of P.D. No. 1521 or
the Ship Mortgage Decree of 1978 are identical to Subsections
 PART II - MARITIME LAW 335
Chapter 8 - Ship Mortgage and Maritime Liens

P, Q, and R, respectively, of the U.S. Ship Mortgage Act of

1920, which is part of the Federal Maritime Lien Act."a Hence,
U.S. jurisprudence finds relevance to determining whether
P.D. No. 1521 or the Ship Mortgage Decree of 1978 applies in
cases involving its application. 4
2. MARITIME LIEN. In general terms, maritime lien
is a privileged claim on a vessel for some service rendered to it to
facilitate its use in navigation. 5 lt is a special property right in a ship
given to a creditor by law as security for a debt or claim subsisting
from the moment the debt arises with right to have the ship sold and
debt paid out of the proceeds. 6
a. In the Philippines, a maritime lien is akin to a mortgage
lien in that in spite of the transfer of ownership, the lien is not
extinguished. The maritime lien is inseparable from the vessel and
until discharged, it follows the vessel. Hence, the enforcement of a
maritime lien is in the nature and character of a proceeding quasi in
rem. 1
b. The expression "action in rem" is, in its narrow application,
used only with reference to certain proceedings in courts of admiralty
wherein the property alone is treated as responsible for the claim or
obligation upon which the proceedings are based. Thus, a maritime
lien subsists notwithstandin g the subsequent transfer of the vessel. s
2.01. PREFERRED CLAIMS. Section 17 of the Ship
Mortgage Decree provides that preferred mortgage lien should
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) Crew's wages;
(3) General average;
(4) Salvage; including contract salvage;

3Crescent Petroleum Ltd. v. MN Lok Maheshwari, supra.

4 Crescent Petroleum Ltd. v. MN Lok Maheshwari, supra.
5Black's
Law Dictionary, 6th Edition, 1990, P· 96 9 .
6
Black's Law Dictionary, ibid.
7
Poliand Industrial Ltd. v. NDC, supra.
8
Poliand Industrial Ltd. v. NDC, supra.
336 ESSEN'l'lALS OF TRANSPORTATION AND PUBLIC
UTILITIES LAW

(5) Maritime liens arising prior 1n time to the

recording of the preferred mortgage;
(6) Damages arising out of tort; and
(7) Preferred mortgage registered prior in time.
a. The above-enumerated claims are therefore maritime
liens that attaches to the vessel. Notice of their existence is
not necessary. These maritime liens do not arise from specific
agreement. Although they may arise out of contract or in the
absence of contract, they are imposed even in the absence of
specific contractual provision providing for a lien. Similarly,
the parties may not impose a maritime lien by agreement if one
is not provided by law. In other words, the claim must be one of
those enumerated under Section 17.
b. The claims are likewise not based on possession.
Possession of the vessel is not necessary for the maritime
liens under Section 17 to attach to the vessel. In other words,
the nature of the claims does not presuppose nor originate in
possession. 9
c. As noted earlier, Section 17 repealed Article 580
of the Code of Commerce. In addition, the enumeration of
preferred claims under Section 17 likewise controls with
respect to claims over mortgaged vessels. "The provision of
P.D. No. 1521 on the order of preference in the satisfaction of
the claims against the vessel is the more applicable statute
to the instant case compared to the Civil Code provisions on
the concurrence and preference of credit. General legislation
must give way to special legislation on the same subject, and
generally be so interpreted as to embrace only cases in which
the special provisions are not applicable." 10
d. The Statute of Frauds under Article 1403 (2) of the
Civil Code is inapplicable. The claim on the maritime lien is
based on law, P .D. 1521, and not on any contract or agreement.11
2.02. EXECUTORY CONTRACT DOCTRINE. A lien
does not attach for breach of an executory contract even though

9
Gilmore and Black, Jr., p. 595.
10
Poliand Industrial Ltd. v. NDC, supra .
11
Poliand Industrial Ltd. v. NDC, supra.
 -- ---- -- -- -- -
PART II - MARITIME LAW
337
Chapter 8 - Ship Mortgage and Maritime Liens

the contract is the type which normally gives rise to a lien.12

Liability arises in admiralty for breach of contract but if the
parties have performed his obligation, his remedy against the
other is only for breach in an action in personam. 13For example,
there is no lien if favor of a person who has not yet delivered the
supplies to the vessel even if there is already a valid contract. 14
2.03. WAIVER OF LIEN. Furnishe rs of repairs, supplies,
towage, use of dry dock or marine railway, or other necessaries,
or the mortgagee, are not prevented from waiving their right
to a lien, or in the case of a preferred mortgage lien, to the
preferred status of such lien, at any time by agreemen t or
otherwise.is "It is not necessary to say that the lien is indelible
and may not be lost by negligence or delay where the rights
of third parties may be compromised; but where reasonab le
diligence is used, and the proceedings are had in good faith, the
lien may be enforced, into whosesoever possession the thing
may come.i6
2.04. PRESCRIPTION AND LACHES. Under Article
1144 of the Civil Code, an action upon an obligation created by
law must be brought within ten (10) years from the time the
right of action accrues. Hence, enforcement of a maritime lien
imposed by special law prescribes in ten (10) years.17
a. Laches may also lie if there was unreason able delay
on the part of claimant in asserting its rights. is "The protection
against third person accorded to the maritime lienor is narrowly
circumscribed by the requirem ent that he must act promptly to
assert his rights." 19
2.05. MARITIME LIENS FOR NECESSARIES. The
maritime liens that are superior to the preferred mortgage
includes maritime lien for necessaries. Sections 21 of the Ship
Mortgage Decree provides for the following requirements for

i2Giles and Black, Jr. p. 635.

13
Giles and Black, Jr., ibid.
14
Giles and Black, Jr., p. 634.
15
Section 24, PD 1521. . .
16The Bold Buccleugh,
7 Moore, P.C. 267 [1852], cited m Gilmore and Black,
p. 595.
17
Poliand Industrial Ltd. v. NDC, supra.
ispoliand Industrial Ltd. v. NDC, supra.
i9Gilmore and Black, p. 596.
 JC
338 Eflf;E NTIA LH CW 'I'RAN HPOR'f'ATJON AN D PUBL
U'l'IL I'l'IES LAW

by sujt in
a maritime lien for nece ssaries which is enforceable
rem:
(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 mus t be necessity for the extension of
the credit; and
(5) the necessaries mus t be ordered 20by persons
authorized to contract on behalf of the vessel.
have
a. The following persons shall be presumed to
towage,
auth ority from the owner to procure repairs, supplies,
ies for the
use of dry dock or marine railway, and other necessar
vessel:
(1) The managing owner,
(2) Ship's husband,
(3) Master, or
(4) Any person to whom the man agem ent of the
vessel at the port of supply is entr uste d.
21

n
b. No person tortiously or unlawfully in possessio 22
vessel.
or charge of a vessel shall have auth ority to bind the
to include
The officers and agen ts of a vessel shal l be take n
r, by an
such officers and agen ts whe n appointed by a characte
ession of
owner pro hac vice, or by an agreed purc hase r in poss
the vessel. 23
c. No lien is conferred whe n the furn ishe r know, or by
ed, that
exercise of reasonable diligence could hav e ascertain
for sale of
because of the term s of a cha rter part y, agre eme nt
ring the
the vessel, or for any othe r reason, the pers on orde
authority
repa irs, supplies, or othe r nece ssar ies was with out
to bind the vessel therefor.
24

2
°Crescent Petro leum Ltd. v. MN Lok Mahe shwa ri,
supra.
21
Section 22, P.D. 1521.
22
Section 22, P.D. 1521.
23
Section 23, P.D. 1521.
24
Section 23, P.D. 1521.
P'

PART II - MARITIME LAW 339

Cha pter 8 - Ship Mortgage and Maritime Liens

d. Example s of maritime liens for necessari es are

claims with respect to expenses for the payment of bunker
oil/fuel, unused stores and oil, bonded stores, provisions, and
repair and docking of the vessel are preferred claims because
they are necessari es. Addition ally, the costs of modification
are also necessari es under Section 21 of the SMD. Such cause
is a necessar y expense for the vessel's navigatio n. As long as
an expense on the vessel is indispens able to the maintena nce
and navigatio n of the vessel, it may properly be treated as a
maritime lien for necessari es under Section 21, P.D. No. 1521. 26
e. A necessity of credit will be presume d where it
appears that the repairs and supplies were necessar y for the
ship and that they were ordered by the master. Hence, this
presump tion does not arise in a case where it was establish ed
that the master did not order the fuels and there was no proof
of necessity for the supplies. 26
2.06. MARITIME TORT. Torts contemp lated under
Section 17 are maritime torts. Maritime torts are defined as
civil wrongs committe d on navigabl e waters. 21 As a general
principle , any conduct which is tortuous under general law and
which is connecte d with the ship or its uses creates a maritime
lien. 28 It includes collision claims and personal injury claims. 29
a. Hence, personal injuries resulting from defective
appliance s, improper construc tion or negligenc e of the ship's
crew give rise to maritime lien. 30
2.07. SALVAGE LIEN. Salvage claims may either be
one arising ex contractu or that imposed by Act No. 2616. 31
Salvage is given preferenc e because of the benefit conferred in
preservin g the value of the vessel and the cargo. 32

25
Poliand Industrial Ltd. v. NDC, supra.
26
Crescent Petroleum Ltd. v. WV Lok Maheshwa ri, supra.
27
Black's Law Dictionary , p. 874. . 7
28
Gilmore and Black, p. 629 citing State of Califorma v. S/S Bournemouth • 30
F.Supp. 922 [1970].
29
1bid. · M ·11
30
Gilmore and Black, p. 628, citing North American Dredging Co. v. Pacific ;~
S.S. Co., 185 F. 698 [1911]; The Anaces, 93 F. 240 [1899]; The Elton, 83 F. 519 [l 8 ].
31
See Chapt er 17 for discussion of Salvage.
a2c 1·1more and Black, p. 628.
340 ESSE NTIALS OF TRAN SPORTATIO N AND PUBLIC
UTILITIES LAW

2.08. SUBROGATION. The Supr eme Cour t explained

in
Philippine National Bank v. Court of Appeals, that a third
33

person who satisfies the obligation to an original maritime

is
lienor may claim from the debtor because the third person
l.
subrogated to the right s of the mari time lienor over the vesse
For example the person who advanced the wages of the crew
of the vessel is subro gated to the right s of crew for their claim
for wages. The Cour t explained in Phili ppin e Natio nal Bank
34

v. Court of Appeals 35 as follows:

"From the foregoing, it is clear that the amou nt

used for the repai r of the vessel M/V "Asean Liberty'' was
advan ced by Citib ank and was utiliz ed for the purpo se
of payin g off the original marit ime lienor, Hong Kong
Unite d Dockyards, Ltd. As a perso n not inter ested in the
fulfilment of the obligation betw een PISC and Hong Kong
Unite d Dockyards, Ltd., Citib ank was subro gated to the
right s of Hong Kong Unite d Dockyards , Ltd. as a marit ime
lieno r over the vessel, by virtu e of Article 1302, par. 2
of the New Civil Code. By definition, subro gatio n is the
trans fer of all the right s of the credi tor to a third person,
who subst itutes him in all his right s. Cons iderin g that
Citib ank paid off the debt of PISC to Hong Kong Unite d
Dockyards, Ltd. it became the trans feree of all the right s
of Hong Kong Dockyards, Ltd. as again st PISC , inclu ding
the marit ime lien over the vesse l MN "Asia n Liber ty."

2.09. WHEN PROCEEDS ~OT SUFFICIENT. If the

proceeds of the sale shou ld not be suffi cient to pay all creditors
ed
included in one num ber or grad e, the resid ue shall be divid
amon g them pro rata. 36 All cred its not paid , whet her fully
or parti ally shall subs ist as ordin ary cred its enforceable
by
perso nal actio n agai nst the debtor.
37

2.10. TESTS TO DETERMINE THE PRESENCE OF

LIEN. The Supr eme Cour t adop ted the tests appl ied in the
r
Unit ed State s in dete rmin ing if there is a mari time lien unde

d Industrial
33
G.R. No. 128661, Augu st 8, 2000, 337 SCRA 381 cited in Polian
Ltd. v. NDC, supra.
34
Poliand Indus trial Ltd. v. NDC, supra.
35
Supra .
36
Section 17, PD 1521.
37
Section 17, PD 1521.