Maritime Commerce (Arts. 573-869, Code of Commerce)

Maritime/Admiralty Law

It is the system of laws which particularly relates to the affairs and business of the sea, to ships, their crews and navigation, and to maritime conveyance of person and property.

The primary law on maritime commerce is the New Civil Code provisions on common carriers. The Code of Commerce and special laws, such as, Act No. 2616 (Salvage Law), Act No. 65 (Carriage of Goods by Sea Act”, and P.D. 1521 (Ship Mortgage Decree of 1978). Maritime treatises and conventions adopted by the Philippines are also deemed part of our laws, e.g., United Nations Convention on the Law of the Sea (UNCLOS), International Conventions for the Safety of Life at Sea (SOLAS 1974) and Tonnage Convention of 1969.

Doctrine of Limited Liability (Real and Hypothecary Nature)

General Rule: “No vessel, no liability” – The liability of shipowner and ship agent is limited to the amount of interest in said vessel such that where vessel is entirely lost, the obligation is extinguished. The other properties of the shipowner cannot be reached by the persons entitled to damages.

The exclusively real and hypothecary nature of maritime law operates to limit the liability of the shipowner to the value of the vessel, earned freightage and insurance proceeds if any. The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection with losses related to maritime contracts is confined to the vessel, which stands as the guaranty for their settlement.

The doctrine is based on the real and hypothecary nature of maritime law which has its origin in the prevailing conditions of the maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against these adverse conditions and to encourage shipbuilding and maritime commerce, it deemed necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance if any.

The limited liability doctrine applies not only to the goods but also in all cases like death or injury to passengers.

The rights of a vessel owner or agent under the limited liability rule are akin to those of the rights of shareholders to limited liability under our Corporation laws. In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are limited in their recovery to the remaining value of accessible assets.

Still, the shipowner is presumed negligent or at fault and has the burden of showing the exercise of extraordinary diligence, otherwise the doctrine of limited liability cannot apply.

Cases where applicable:

1. Art. 587 – civil liability for indemnities to third persons;2. Art. 590 – indemnities from negligent acts of the captain (not the ship owner or ship agent);3. Art. 837 – collision; and,4. Art. 643 – liability for wages of the captain and the crew and for advances made by the ship agent

if the vessel is lost by shipwreck or capture.

Exceptions:

1. Claims under Workmen’s Compensation; (Abueg vs. San Diego, 77 Phil 730), but see: Employees Compensation Commission under the Labor Code;

2. Injury or damage due to shipowner or to the concurring negligence of the shipowner and the captain;

3. The vessel is insured;

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4. Expenses for repair and provisioning of the ship before its loss; (Government of the Phil. v. Maritime, 45 Phil. 805)

5. In case there is no total loss and the vessel is not abandoned.Read: Chua Yek Hong v. IAC

G.R. No. L-74811, December 14 1988Monarch Insurance Co. Inc. v. Court of AppealsG.R. No. 92735, June 8, 2000Aboitiz Shipping Corp. vs. General Accident Fire and Life Assurance Corp. GR. No. 100446 January 21, 1993Central Shipping Co vs. Insurance Co. of N. AmericaG.R. No. 150751, September 20, 2004Heirs of Amparo Delos Santos vs. CA, GR No. 51165 June 21, 1990Aboitiz Shipping Corp. v. Court of AppealsG.R. No. 121833, October 17, 2008

A. Merchant Vessel

A merchant vessel is one engaged in maritime commerce, whether foreign or otherwise.

Under P.D. 474 a vessel or watercraft is defined as any barge, lighter, bulk carrier, passenger ship freighter, tanker, container ship, fishing boats or other artificial contrivance utilizing any source of motive power, designed, used or capable of being used as a means of water transportation operating either as common contract carrier, including fishing vessels covered under Presidential Decree No. 43, except (1) those owned and/or operated by the Armed Forces of the Philippines and by foreign governments for military purposes, and (ii) bancas, sailboats and other waterborne contrivance of less than three gross tons capacity and not motorized.

A “banca” must also be considered as a vessel within the general meaning of the word as understood in the Code of Commerce. However, vessels which are licensed to engage in maritime commerce, or commerce by sea, whether in foreign or coastwise trade, are those regulated by the provisions on Maritime Commerce (Book III of the Code of Commerce). Other vessels of a minor nature not engaged in maritime commerce, such as river boats and those carrying passengers from ship to shore, must be governed, as to their liability to passengers, by the provisions of the Civil Code or other appropriate special provisions of law.

A merchant vessel is a property which may be acquired and transferred by any of the means recognized by law. Thus, vessels may be sold, donated, and may even be acquired by prescription. They shall continue to be considered as personal property. (Arts. 573, 585, Code of Commerce). The vessel may be attached and judicially sold for debts of whatever kind (Art. 584, Code of Commerce). Because of their value, as well as registration requirements, vessels have the nature and conditions of real property, but vessels are still considered just a special kind of personal property possessed of a quasi-personality attribute as exemplified by the nature of limited liability based on its exclusively real and hypothecary nature. There are special provisions in the Code of Commerce, for instance in the acquisitive prescription of vessels, which subordinate those prescribed in the Civil Code.

Vessels are now registered with the Maritime Industry Authority who has exclusive authority in matters or registration and documentation of Philippine vessels including the issuance of certificates, licenses, or other documents incident thereto. The MARINA maintains a “Register of Philippine Vessels. The registered owner of the vessel is presumed to be the owner of the vessel and the sale or transfer of a vessel is not binding on third persons unless the same is registered. A vessel of domestic ownership of more than 15 GRT should be registered to entitle it to the protection of Philippine laws and the right to fly the Philippine flag. Registration of vessels below 15GRT is optional, but if not registered a vessel identity certificate is required. The following vessels are not covered: (1) warships and naval vessels; (2) all vessels of foreign registry temporarily used in Philippine waters for less than 1 year; and (3) non-motorized bancas,

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sailboats, and other waterborne contrivance of less than three gross tons capacity. (See MARINA Memo. Circ. No. 90)

1. Maritime Lien

Vessels are susceptible to maritime liens such as for the repair, equipping and provisioning of the vessel in the preparation of a voyage, as well as mortgage liabilities, in satisfaction of which a vessel may be validly arrested and sold (Ship Mortgage Decree of 1978 [PD 1521]).

It constitutes a present right of property in the ship, a jus in re, to be afterward enforced in admiralty by process in rem. If the maritime lien arose prior to the recording of a preferred mortgage, it shall have priority over the said mortgage lien

A mortgage on the vessel is generally like the other chattel mortgage as to the requisites, the only difference is that chattel mortgage of vessel need not be noted in the registry of deeds but record must be entered in the Collector of Customs at the port of entry.

Under R. A. No. 6106 and P. D. 1521 (Ship Mortgage Decree of 1978) A person may, for the purpose of financing the construction, acquisition, purchase of vessels or initial operation of vessels, freely constitute a mortgage or any other lien or encumbrance on his or its vessels and its equipment with any bank or other financial institutions, domestic or foreign.

a. Order of Preference in Case of Sale of Vessel (See Art. 580, Code of Commerce)

R. A. No. 6106, which took effect in 1969 prescribes the rules for financing the acquisition or construction of vessels to be used for overseas shipping. In case of judicial sale of the vessel, it provides that the mortgage created shall have priority over all claims against the vessel, except the following preferences in the order stated: (1) Judicial costs of the proceedings; (2)Taxes due the Philippine Government; (3) Salaries and wages of the Captain and Crew of the vessel during its last voyage; (4) General average on salvage including contract salvage bottomry loans and indemnity due shippers for the value of goods transported but which were not delivered to the consignee; (5) Costs of repair and equipment of the vessel, and provisioning of food, supplies, and fuel during its last voyage, and (6) Preferred mortgages registered prior in time.

P. D. 1521 (Ship Mortgage Decree of 1978) applies to both domestic and overseas shipping. In case of judicial or extrajudicial sale of the vessel, the mortgage lien shall have priority over all claims against the vessel, except the following preferences 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. Effect of sale

All pre-existing claims in the vessel are terminated. They will then be satisfied from the proceeds of the sale subject to the order of preference.

2. Abandonment

Abandonment of the vessel, its appurtenances and freightage is an indispensable requirement before the shipowner or ship agent can enjoy the benefits of limited liability principle.

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If the carrier does not want to abandon the vessel, then he is still liable even beyond the value of the vessel. is necessary to limit the liability of the shipowner. The only instance where abandonment is dispensed with is when the vessel is entirely lost, e.g., by reason of capture or shipwreck.

The shipowner or ship agent may exempt himself from liability for indemnities to third persons by abandoning the vessel with all her equipments and freight it may have earned during the voyage (Art. 587, Code of Commerce). A co-owner may likewise abandon his share, before a notary public, of the part of the vessel belonging to him to exempt himself from this liability (Art. 590, Code of Commerce). There can also be abandonment in case of constructive loss of the vessel (Sec. 138, Insurance Code). In case of abandonment, ownership over the vessel or part thereof shall be transferred from the shipowner to the creditor or insurer.

The charterers and shippers may abandon merchandise for payment of freight in case of leakage of at least ¾ of the contents of a cargo containing liquids (Art. 687 Code of Commerce).

A consignee of goods shipped can abandon the same in case of partial or non-delivery, where the goods are useless without the others (Art. 363, Code of Commerce); goods are rendered useless for sale or consumption for the purposes for which they are properly destined (Art. 365, Code of Commerce); and in case of delay through the fault of the carrier (Art. 371, Code of Commerce). Ownership of the goods shall be transferred to the carrier who shall pay the market value of the goods.

Read: Lopez v. Duruelo, G.R. No. 29166, October 22, 1928 Yu Con vs. Ipil, G.R. No. L-29166, October 22, 1928Phil. Refining Corp. vs. JarqueG.R. No. 41506, March 25, 1935Philippine National Bank v. Court of AppealsG.R. No. 128661, August 8, 2000Luzon Stevedoring vs. Court of AppealsG.R. No. L-58897 December 3, 1987Poliand Industrial Limited v. NDCG.R. No. 143866, August 22, 2005

B. Parties in Maritime Commerce

1. Shipowners and Ship Agents

The shipowner (proprietario) is the person who has possession, control and management of the vessel and the consequent right to direct her navigation and receive freight earned and paid, while his possession continues. The vessel may be co-owned by two or more persons (See Art. 589-594, Code of Commerce). A charterer under a bareboat charter may be considered the owner of the vessel pro hac vice.

The shipowner is primarily liable for damages sustained in the operation of a vessel.

The ship agent (naviero) is the person entrusted with provisioning of the vessel, or who represents her in the port in which she happens to be (Art. 595, Code of Commerce); the term includes the shipowner and even a charterer who is considered as owner pro hac vice. A ship agent, unlike a mere agent in civil law, is jointly and severally (solidarily) liable with the owner. The ship agent even though he is not the owner, is liable in every way to the creditor for losses and damages, without prejudice to his right against the owner, the vessel and its equipment and freight; and subject to the rule on limited liability.

When a local corporation prepares the notice of readiness, the statement of facts, the completion notice, the sailing notice and custom’s clearance, and in preparing the needs of the

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vessel, like money, provision, water and fuel, all point to the conclusion that it was the entity that represented the vessel and was the ship agent within the meaning and context of Article 586 of the Code of Commerce.

A Husbanding Agent – is the general agent of the owner in relation to the ship, with powers, among others, to engage the vessel for general freight and the usual conditions, settle freight and adjusts averages with the merchant

a. Powers and functions of a ship agent:

1. Capacity to trade;2. Discharge duties of the captain, subject to Art. 609;3. Contract in the name of the owners with respect to repairs, details of equipment,

armament, provisions of food and fuel, and freight of the vessel, and all that relate to the requirements of navigation; and

4. Order a new voyage, make a new charter or insure the vessel after obtaining authorization from the shipowner or if granted in certificate of appointment.

b. Civil Liabilities of the Shipowner and Ship Agent

1. All contracts of the captain, whether authorized or not, to repair, equip, and provision the vessel (Art. 586, Code of Commerce);

2. Loss and damage to the goods loaded on the vessel without prejudice to their right to free themselves from liability by abandoning the vessel to the creditors (Art. 587, Code of Commerce).

c. Solidary Liabilities of the Ship Agent/Shipowner for Acts Done by the Captain towards Passengers and Cargoes

1. Damages to vessel and to cargo due to lack of skill and negligence;2. Theft and robberies of the crew;3. Losses and fines for violation of laws;4. Damages due to mutinies;5. Damages due to misuse of power,6. For deviations;7. For arrivals under stress; and,8. Damages due to non-observance of marine regulations (Art. 618, Code of Commerce).

d. Authority of Ship Agent to Discharge the Captain and Member of the Crew (the captain may also discharge a crew in the absence of the ship agent)

If the crew’s contract is not for a definite period or voyage, the ship agent may discharge the crew at his discretion (Art. 603, Code of Commerce).

If the contract is for a definite period or voyage, the ship agent may not discharge a crew until after the fulfillment of the crew’s contract, except on the following just causes: (a) Insubordination in serious matters; (b) Robbery; (c) Theft; (d) Habitual drunkenness; and, (e) Damage caused to the vessel or to its cargo through malice or manifest or proven negligence (Art. 605, Code of Commerce). (Note however that the provisions of the Labor Code for those employed in domestic transportation and rules and regulations of the POEA for seamen hired for overseas, applies)

2. Captains

The Captain, master or patron of the ship is the chief or commander of the ship.

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a. A captain or master, for purposes of maritime commerce, is one who has command of a vessel. He commonly performs 3 distinct roles:

1. He is the general agent of the shipowner;2. He is also the commander and technical director of the vessel; and,3. He is a representative of the country under whose flag he navigates.

A ship captain must be accorded a reasonable measure of discretionary authority to decide what the safety of the ship and of its crew and cargo specifically requires on a stipulated ocean voyage.

b. Qualifications of a ship captain

1. Filipino citizen;2. Legal capacity to contract;3. Must have passed the required physical and mental examinations required for licensing

him as such (Art. 609, Code of Commerce).

c. Inherent powers of a ship captain:

1. Appoint crew in the absence of ship agent;2. Command the crew and direct the vessel to its port of destination;3. Impose correctional punishment on those who, while on board vessel, fail to comply with

his orders or are wanting in discipline;4. Make contracts for the charter of vessel in the absence of ship agent: (a) to supply,

equip, and provision the vessel; and (b) order repair of vessel to enable it to continue its voyage (Art. 610, Code of Commerce)

To comply with his inherent powers, the captain may source funds from the following, in successive order: (a) the consignee of the vessel; (b) the consignee of the cargo; (c) drawing on the ship agent; (d) a loan on bottomry; and (e) sale of part of the cargo (Art. 611, Code of Commerce)

d. Duties of a ship captain:

1. Bring on board the proper certificate and documents and a copy of the Code of Commerce;

2. Keep a Log Book, Accounting Book and Freight Book;3. Examine the ship before the voyage;4. Stay on board during the loading and unloading of the cargo;5. Be on deck while leaving or entering the port;6. Protest arrivals under stress and in case of shipwreck;7. Follow instructions of and render an accounting to the ship agent;8. Leave the vessel last in case of wreck;9. Hold in custody properties left by deceased passengers and crew members;10. Comply with the requirements of customs, health, etc. at the port of arrival;11. Observe rules to avoid collision,12. Demand a pilot while entering or leaving a port. (Art. 612, Code of Commerce)

The ship’s logbook is the official record of the ship’s voyage which its captain is obligated by law to keep and the entries made are prima facie evidence of the facts stated therein.

The responsibility of the captain remains even if the vessel in on a compulsory pilotage.

e. The captain is not liable for the f: (a) Damages cause to the vessel or to the cargo by force majeure; and (b) Obligations contracted for the repair, equipment, and provisioning of the vessel unless he has expressly bound

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himself personally or has signed a bill of exchange or promissory note in his name (Art. 620, Code of Commerce)

f. The captain may not substitute himself with another in the absence of any consent from the ship agent and should he do so he shall be liable for all the acts of the substitute and bound to pay the indemnities mentioned in Art. 614 of the Code of Commerce. (Art 615, Code of Commerce)

3. Officer and Crew

The complement of the vessel are all persons on board, from the captain to management, maneuvers, and service, thus including the crew, the sailing mates, engineers, stokers, and other employees on board not having specific designations; but, it shall not include the passengers or the persons whom the vessel is transporting. (Art. 648, Code of Commerce)

a. Sailing Mate/First Mate

Second chief of the vessel who takes the place of the captain in case of absence, sickness, or death and shall assume all of his duties, powers, and responsibilities (Art 627)

b. Second Mate

Third in command. Takes command of the vessel in case of inability or disqualification of the captain and the sailing mate, assuming in such case their powers and responsibilities.

c. Engineers

Officers of the vessel but have no authority except in matter referring to the motor apparatus. When two or more are hired, one of them shall be the chief engineer.

d. Crew

The aggregate of seamen who man a ship, or the ship‘s company. The remaining complement of the vessel.

The crew are hired by the ship agent, where he is present and in his absence, the captain hires them, preferring Filipino, and in their absence, he may take in foreigners, but not exceeding 1/5 of the crew, except when in a foreign port and no sufficient Filipinos are available. (Art. 634 Code of Commerce)

e. Revocation of Voyage

The voyage may be revoked by the will of the ship agent and the charterer before or after the vessel has put to sea, but the crew shall be indemnified on account of rescission of contract. But the crew shall be entitled only to wages earned if the revocation is due to the following just causes:

1. War or interdiction of commerce;Interdiction of commerce – A governmental prohibition of commercial intercourse intended to bring about an entire cessation for the time being of all trade whatever.

2. Blockade – A sort of circumvallation of a place by which all foreign connection and correspondence is, as far as human power can effect it, to be cut off.

3. Prohibition – to receive cargo at destination;4. Embargo – A proclamation or order of a state usually in time of war or threatened

hostilities, prohibiting the departure of ships or goods from some or all the ports of such state until further order.

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5. Inability of the vessel to navigate (Art. 640, Code of Commerce)

f. The officers or crew are freed from obligation to render service in the following cases:

1. If, before beginning voyage, captain attempts to change it, or a naval war with the power to which the vessel was destined occurs;

2. If a disease breaks out and be officially declared an epidemic in the port of destination;3. If the vessel should change owner or captain (Art 647, Code of Commerce)

g. Just Causes for the Discharge of Seaman While Contract Subsists

1. Perpetration of a crime;2. Repeated insubordination, want of discipline;3. Repeated incapacity and negligence;4. Habitual drunkenness;5. Physical incapacity;6. Desertion (Art. 637 Code of Commerce).

h. Rules in case of Death of a Seaman

The seaman’s heirs are entitled to payment as follows:

1. If death is natural:a. Compensation up to time of death if engaged on wageb. If by voyage – half of amount if death occurs on voyage out; and full, if on voyage inc. If by shares – none, if before departure; full, if after departure.

2. If death is due to defense of vessel – full payment;3. If captured in defense of vessel – full payment;4. If captured due to carelessness – wages up to the date of the capture (Art. 645, Code of

Commerce).

4. Supercargoes

Persons who discharge administrative duties assigned to them by ship agent or shippers, keeping an account and record of transaction as required in the accounting book of the captain (Art. 649, Code of Commerce). A supercargo may be authorized to sell the goods at the port of destination and purchase goods for the return voyage.

5. Pilot

A person duly qualified and licensed to conduct a vessel into or out of ports, or in certain waters. In broad sense, the term “pilot” includes both. (a) Those whose duty is to guide vessels into or out of ports or in particular waters, and (b) Those entrusted with the navigation of vessels on the high seas.

The term generally connotes a person taken on board at a particular place for the purpose of conducting a ship through a river, road or channel, or from a port. He becomes the master pro hac vice (for the time being) in the command and navigation of the ship. While exercising his functions a pilot is in sole command of the ship and supersedes the master for the time being in the command and navigation of the ship; the master does not surrender his vessel to the pilot and the pilot is not the master. There are occasions when the master may and should interfere and even displace the pilot, as when the pilot is obviously incompetent and intoxicated.

a. Compulsory Pilotage

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States possessing harbors have enacted laws or promulgated rules requiring vessels approaching theirs ports to take on board pilots licensed under the local laws.

b. Liability of Pilot

On compulsory pilotage grounds, the Harbor Pilot is responsible for damage to a vessel or to life or property due to his negligence.

However, the pilot is not liable in case of the following: (a) accident caused by force majeure or natural calamity provided the pilot exercised prudence and extra diligence to prevent or minimize damages; and, countermand or overrule by the master of the vessel in which case the registered owner of the vessel is liable. (Sec. 11, Art II PPA Admin Order 03-85)

The fact that the law compelled the master to take the pilot does not exonerate the vessel from liability. The owners of the vessel are responsible for the acts of the pilot, and they must be left to recover the amount against him.

Read: Chua Hek Yong vs. IAC

G.R. No. 74811, September 30, 1988Macondray & Company, Inc. v. Provident Insurance Corp., G.R. No. 154305, December 9, 2004.Inter-Orient Maritime Enterprises, Inc. vs. NLRC GR No. 115286, August 11, 1994Wildvalley Shipping Co., vs. Court of Appeals G.R. No. 119602 October 6, 2000Sadagnot v. Reinier Pacific Int’l Shipping Inc., G.R. No. 152636, August 8, 2007Far Eastern Shipping Co. v. Court of AppealsG.R. No. 130068, October 1, 1998

C. Special Contracts of Maritime Commerce

1. Charter party.2. Bill of lading3. Contract of transportation of passengers on sea voyages4. Loans on bottomry and respondentia5. Marine insurance

1. Charter PartyA contract whereby an entire ship or some principal part of the said ship, is let by the

owner thereof to a merchant or other person for a specified time or use for the conveyance of goods, in consideration, of the payment of freight.

A charter party is a written contract whereby the shipowner or the ship agent leases the vessel to transport passengers or cargo for a fixed price.

Because of the implied warranty of seaworthiness, shippers of goods, when transacting with carriers, are not expected to inquire into the vessels’ seaworthiness, genuineness, or its licenses and compliance with maritime laws.

Even if a charter party has a condition against sub-chartering, and the vessel was in fact sub-chartered without knowledge on the part of the sub-charterer of the prohibition, no cause of action arises in favor of the owner of the vessel against the sub-charterer. Neither does such owner have any lien against the cargo of sub-charterer since by the charter party agreement, the possession of the entire ship passed to the charterer. Carrier has a lien on the goods only while he retains possession of the goods.

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Where a bill of lading has been issued covering goods shipped aboard a vessel under a charter party, and the charterer remains the holder of bill of lading, "the bill of lading operates as a receipt for the goods, and as a document of title passing the property of the goods, but not as varying the contract between the charterer and the shipowner." The bill of lading becomes merely a receipt and not a contract of carriage in a charter of the entire vessel for the contract is the charter party.

a. Kinds of Charter Parties

1. Bareboat Demise Charter

The shipowner leases to the charterer the whole vessel, transferring to the latter the entire command, possession and consequent control over the vessel’s navigation, including the master and the crew, who thereby becomes the charterer’s “servant.”

Effects of a Bareboat Charter

(a) The charterer becomes the owners pro hac vice;(b) Charterer is liable for the expense of the voyage including the wages of the seamen;(c) The charterer is also liable for damages arising from negligence; (d) Charterer assumes the customary rights and liabilities of the shipowner in relation to third persons dealing with him or with the vessel;(e) The captain of the vessel becomes the agent of the charterer;(f) If it is a common carrier, it is converted into a private carrier.

2. Contract of Affreightment

A contract whereby the owner of the vessel leases part or all of its space to haul goods for others.

Two kinds of contract of affreightment

(a) Time Charter – vessel is chartered for a fixed period or time.(b) Voyage or Trip Charter – the vessel is leased for one or series of voyages.

Effects of a Contract of Affreightment

(a) The charterer hires the vessel only;(b) Captain and crew remain in the employ of the shipowner;(c) The charterer acquires the right to utilize the carrying capacity and facilities of the vessel and to designate her destinations for the duration of the time or voyage stipulated;(d) Shipowner remains as the owner of the vessel;(e) Shipowner liable for the expenses of the voyage.(f) If it is a common carrier, it is not converted into a private carrier.

b. Difference between lease and charter party.

The commercial law concept of a charter party is similar to the civil law concept of lease. There are distinctions however.

Lease Charter PartyIf for a definite period, lessee cannot give up the lease by paying a portion of the amount agreed upon.

Charterer may rescind charter party by paying half of the freightage agreed upon

If the leased property is sold to one who knows of the

The new owner is not compelled to respect the charter party so

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existence of the lease, the new owner must respect the lease.

long as he can load the vessel with his own cargo (Art. 689).

A lessee may generally sublease the property in the absence of express prohibition.

The charterer shall have the right to subcharter the vessel to a third person only if he is authorized by the ship owner. Otherwise, he shall be liable to the shipowner for any damages caused to the latter by virtue of the subcharter.

c. Requisites of a Valid Charter Party

1. Consent of the contracting parties.2. Object, i.e., existing vessel which should be placed at the disposition of the shipper.3. Consideration, i.e., freight.4. Formalities under Art. 652 of the Code of Commerce, i.e., drawn in duplicate, signed by

the parties and containing the mandatory conditions in such contract, etc.

d. Permissible Clauses in a Charter Party

1. Jason Clause – A stipulation in a charter party that in case of a maritime accident for which the shipowner is not responsible by law, contract or otherwise, the cargo shippers, consignees or owners shall contribute with the shipowner in general average.

2. Paramount Clause – A clause in a charter party providing that the COGSA shall apply, even though the transportation is domestic, subject to the extent that any term of the bill of lading is repugnant to the COGSA or applicable law, then to the extent thereof the provision of the bill of lading is void.

e. Rights and Obligations of Parties

1. Shipowner or Ship Agent (Arts. 669–678, Code of Commerce)

(a) If the vessel is chartered wholly, not to accept cargo from others;(b) To observe represented capacity;(c) To unload cargo clandestinely placed(d) To substitute another vessel if load is less than 3/5 of capacity;(e) To leave the port if the charterer does not bring the cargo within the lay days and extra lay days allowed;(f) To place a vessel in a condition to navigate; and,(g) To bring a cargo to nearest neutral port in case of war or blockade.

2. Chaterer (Arts. 679-687, Code of Commerce)

(a) To pay the agreed charter price;(b) To pay freightage on unboarded cargo;(c) To pay losses to others for loading uncontracted cargo or illicit cargo;(d) To wait if the vessel needs repair; and,(e) To pay expenses for deviation.

f. Rescission of a Charter Party

1. At the request of the charterer (Art. 688, Code of Commerce)(a) By abandoning the charter and paying half of the freightage;(b) Error in tonnage or flag;(c) Failure to place the vessel at the charterer’s disposal;(d) Return of the vessel due to pirates, enemies, or bad weather;(e) Arrival at a port for repairs.

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2. At the request of the shipowner (Art. 689, Code of Commerce)(a) If the extra lay days terminate without the cargo being placed alongside the vessel;(b) Sale by the owner of the vessel before loading by the charterer.

3. Fortuitous causes (Art. 690, Code of Commerce)

(a) War or interdiction of commerce;(b) Blockade;(c) Prohibition to receive cargo;(d) Embargo; and(e) Inability of the vessel to navigate

g. Common terms in charters

1. Primage – bonus to be paid to the captain after the successful voyage.2. Demurrage – the sum fixed in the charter party as a remuneration to the owner of the

ship for the detention of his vessel beyond the number of days allowed by the charter party for loading or unloading or for sailing.

3. Deadfreight – the amount paid by or recoverable from a charterer of a ship for the portion of the ship’s capacity the latter contracted for but failed to occupy.

4. Lay Days – days allowed to charter parties for loading and unloading the cargo.5. Extra Lay Days – days which follow after the lay days have elapsed.

h. Transshipment of Goods

The act of taking cargo out of one ship and loading it in another, or the transfer of goods from the vessel stipulated in the contract of affreightment to another vessel before the place of destination named in the contract has been reached, or the transfer for further transportation from one ship or conveyance to another. If done without legal excuse, however, competent and safe the vessel into which the transfer is made, is a violation of contract and infringement of right of shipper and subjects carrier to liability if freight is lost event by cause otherwise excepted.

Read: Caltex v. Sulpicio Lines, G.R. No. 131166, Sep. 30, 1999Ouano v. Court of AppealsG.R. No. 95900, July 23, 1992National Union Fire v. Stolt-Nielsen PhilippinesG.R. No. G.R. No. 87958. April 26, 1990Magellan Manufacturing v. Court of AppealsG.R. No. 95529. August 22, 1991Planters Products Inc. v. Court of AppealsG.R. No. 101503, September 15, 1993National Food Authority v. Court of AppealsG.R. No. 96453. August 4, 1999

2. Loans on Bottomry and Respondentia

A loan on bottomry is secured by the ship owner or ship agent guaranteed by the vessel itself and payable only upon the arrival of vessel at destination. This can also be secured by the captain outside the residence of the ship owner or ship agent. Bottomry in maritime law, iis a contract whereby the owner of a ship borrows for the use, equipment or repair of the vessel, for a definite term, and pledges the ship (or the keel or bottom of the ship pars pro toto) as security, with a stipulation that if a ship is lost during the voyage or during the limited time on account of the perils enumerated, the lender shall lose his money.

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A loan on respondentia is a similar loan but one which is secured by the owner of the cargo payable upon safe arrival of cargo at destination. The ship owner, agent or captain cannot secure the loan.

There must be a marine risk upon which the loan is predicated such that if the vessel or cargo is lost by virtue of that risk, the lender loses the capital or money lent.

A loan on bottomry or respondentia may be executed by means of a (a) public instrument, (b) policy signed by the contracting parties and the broker taking part therein, or (c)Private instrument. The contract should be registered otherwise the loan shall not have the preference, in relation to other credits, which it should have. (Art. 720, Code of Commerce)

a. Distinguished from Simple Loan

Bottomry & Respondentia Simple Loan

Rate of interest is not subject laws on usury on account of the extraordinary risk involved

Laws on usury (ceiling fixed for interest that may be validly agreed upon) applies

Duly established existence of a marine risk is necessary

Marine risk is not necessary

The vessel or cargo is hypothecated as security for the loan. The loss of the vessel or cargo extinguishes the obligation to repay

No security is required

Must be executed in accordance with the form and manner prescribed by the code of commerce

Formal requisites of an ordinary contract will suffice

Must be recorded in the registry of vessels to be binding to third persons

No registration is required

The last lender enjoys preference.

The first lender enjoys preference.

b. When considered a Simple Loan

1. Lender loaned an amount larger than the value of the object due to fraudulent means employed by the borrower (Art. 726 Code of Commerce).

2. Full amount of the loan is not used for the cargo or given on the goods if all of them could not have been loaded, the balance will be considered a simple loan (Art. 729 Code of Commerce).

3. If the vessel or cargo on which the money is taken is not subjected to any risk (Art. 729 Code of Commerce).

c. Distinguished from Marine Insurance

Marine Insurance Bottomry or Respondentia

Indemnity is paid after the loss Indemnity is paid in advance by

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has occurred way of a loan

In case of loss of the vessel due to a risk insured against, the obligation of the insurer becomes absolute

In case of loss of the vessel due to a marine peril, the obligation of the borrower to pay is extinguished

Consensual contract Real contract

d. Concurrence with Marine Insurance

The insurable interest of the owner of a ship hypothecated by bottomry is only the excess of the value over the amount secured by bottomry (Sec. 101, Insurance Code). If a vessel is hypothecated by bottomry only the excess is insurable, since a loan on bottomry partakes of the nature of an insurance coverage to the extent of the loan accommodation. Same rule applies in loan on respondentia.

The value of what may be saved in case of shipwreck shall be divided between the lender and the insurer in proportion to the interest of each one (Art. 735 Code of Commerce).

e. Hypothecary Nature of Bottomry or Respondentia

The obligation of the borrower to pay the loan is extinguished if the goods given as security are absolutely lost by reason of an accident of the sea, during the voyage designated, and if it is proven that the goods were on board. Except if the (a) loss is due to inherent defect of the cargo, (b) loss is due to the barratry on the part of the captain, (c) loss is due to the fault or malice of the borrower, (d) vessel was engaged in contraband; and, (e) the cargo loaded on the vessel be different from that agreed upon.

Read: Cathay Insurance Company v. Court of AppealsG.R. No. 76145. June 30, 1987

D. Accidents in Maritime Commerce

1. Averages

Average in maritime commerce refers to an extraordinary or accidental expense incurred during the voyage in order to preserve the cargo vessel or both, and all damages or deterioration suffered by the vessel from departure to the port of destination, and to the cargo from the port of loading to the port of consignment (Art. 806 Code of Commerce).

The person whose property has been saved must contribute to reimburse the damage caused or expense incurred if the situation constituted general average.

An average presupposes that the loss or damage is due to an inherent defect of the goods, an accident of the sea, or a force majeure or the negligence of the crew of the carrier governed by the Code of Commerce; the claims for damages due to the negligence of the common carrier are governed by the Civil Code provisions on common carriers.

a. Average is classified into: (a) general or gross average or (b) simple or particular average (Art. 808) and may be differentiated as follows:

Particular or Simple Gross or General

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Damages or expenses caused to the vessel or cargo that did not inure to the common benefit, and borne by respective owners. (Art. 809)

Damages or expenses deliberately caused in order to save the vessel, its cargo or both from real and known risk (Art. 811).

LiabilityThe owner of the goods which gave rise to the expense or suffered the damage shall bear this average. (Art. 810)

All the persons having an interest in the vessel and the cargo therein at the time of the occurrence of the average shall contribute to satisfy this average in proportion to the value of the owner’s property saved. The insurers and lenders on bottomry and respondentia shall likewise contribute (Arts. 812, 859 and 732)

No reimbursement There may be reimbursement

b. Requisites of Gross or General Average

1. Common DangerBoth the ship and the cargo, after has been loaded, are subject to the same

danger, whether during the voyage or in the port of loading or unloading, that the danger arises from the accidents of the sea, dispositions of the authority or faults of men, provided that the circumstances producing the peril should be ascertained and imminent or may rationally be said to be certain and imminent.

2. Deliberate Sacrifice

The expense or damage is deliberately incurred to save the vessel and cargo.

Usually sacrifice is made through the jettison of the cargo or part of the ship is thrown overboard during the voyage. Also, general average may be incurred where the sinking of a vessel is necessary to extinguish a fire in a port, roadsteads, creek or bay. Likewise, there is general average where cargo is transferred to lighten the ship on account of a storm to facilitate entry into a port (Arts. 816, 817 and 818, Code of Commerce)

Even if sacrificed, goods carried on deck, except in coastwise navigation, and goods not recorded in the books or record of the vessel, shall have no right to indemnity as general average. Also, fuel thrown, if there is more than sufficient fuel for the voyage, shall not be considered general average. (Art 855, Code of Commerce; Rule IX, York-Antwerp Rule)

3. Success

To be able to demand general contribution the vessel and the cargo or portion thereof must be saved by reason of the expense or damage incurred or caused. If after the vessel has been saved from the risk which gave rise to the jettison, it should be lost by another accident, any portion subsequently saved shall be subject to the general average. (Arts. 860, 861, Code of Commerce)

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4. Proper formalities and legal steps i.e. (a) assembly and deliberation, (b) resolution of the captain, (c) entry of the resolution in the logbook, (d) detailed minutes, (e) delivery of the minutes to the maritime judicial authority of the first port within 24 hours from arrival ratification by captain under oath (Arts. 813-814, Code of Commerce)

Expenses incurred to refloat a vessel, which accidentally ran aground, in order to continue its voyage, do not constitute general average. Not only is there absence of a marine peril, common safety factor, and deliberateness. It is the safety of the property, and not the voyage, which constitutes the true foundation of general average

c. Jettison

Jettison is the act of throwing cargo overboard in order to lighten the vessel.

The captain should decide which cargo should be thrown overboard following these rules: (a) First, those which are on the deck, preferring the heaviest one with the least utility and value; (c) Second, those which are below the upper deck, beginning with the one with greatest weight and smallest value. (Art. 815, Code of Commerce)

Jettisoned goods are neither res nullius nor deemed “abandoned” within the meaning of civil law so as to be the object of occupation by salvage.

In order that the jettisoned goods may be included in the gross or general average, the existence of the cargo on board should be proven by means of the bill of lading. (Art. 816, Code of Commerce)

d. York-Antwerp (Y-A) Rules on Determining Liability for Averages With Regard to Deck Cargo

1. Deck cargo is allowed only in domestic/coastwise/inter-land shipping, and is prohibited in international/overseas/foreign shipping.

2. If deck cargo is loaded with the consent of the shipper on overseas trade, it must always contribute to general average, but should the same be jettisoned, it would not be entitled to reimbursement because there is violation of the Y-A Rules.

3. If deck cargo is loaded with the consent of the shipper on coastwise shipping, it must always contribute to general average and if jettisoned would be entitled to reimbursement.

4. If cargo is loaded on deck without consent of the shipper, the captain shall be liable for damages.

The reason for the foregoing is that in domestic shipping, voyages are usually short and the seas are generally not rough, while in overseas shipping, the vessel is exposed for many days to perils of the sea.

Read: A. Magsaysay Inc. vs. AganG.R. No. L-6393, Jan. 31, 1955American Home Assurance v. Court of AppealsG.R. No. 94149. May 5, 1992

2. Arrival under Stress (ARRIBADA)

The arrival of a vessel at the nearest and most convenient port instead of the port of destination, if during the voyage the vessel cannot continue the trip to the port of destination. Arrival under stress is the arrival of a vessel at the nearest and most convenient port on account of the inability to continue voyage due to: (a) lack of provisions; (b) well-founded fear of seizure, privateers, pirates; or (c) accidents of the sea disabling the vessel to navigate. (Art. 819, Code of Commerce)

a. Determination of propriety of arrival under stress

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1. Captain should determine during the voyage if there is well founded fear of seizure, privateers and other valid grounds;

2. Captain shall assemble the officers and summon the persons interested in the cargo who may attend the meeting but without a right to vote;

3. The officers shall determine and agree if there is well-founded reason after examining the circumstances. The captain shall have the deciding vote;

4. The agreement shall be drafted and the proper minutes shall be signed and entered in the log book,

5. Objections and protests shall likewise be entered in the minutes.

b. Arrival under stress shall be considered unlawful in the following cases:

1. Lack of provisions due to negligence to carry necessary provisions according to usage and customs, or provisions should have been rendered useless or lost through bad stowage or negligence in their care;

2. Risk of enemies, privateers, or pirates should not have been well known, manifest and based on positive and probable facts;

3. Defect of the vessel due to improper repair, rigging, equipping preparation in the manner suitable for the voyage; or due to erroneous order of the captain; and,

4. Damage due to acts with malice, negligence, lack of foresight or skill of captain. (Art. 820, Code of Commerce)

The lawfulness of the arrival under stress determines is damages if damages will be shouldered by the shipowner and the ship agent. If the arrival under stress is proper, the shipowner and the shipagent will only be liable for the expenses for the same arrival. On the other hand, the shipowner and ship agent, will be liable for the same expenses and in addition, they shall be solidarily liable with the captain for damages caused to the cargoes by such arrival under stress. (Art. 821, Code of Commerce)

When the voyage is diverted to another port not due to fortuitous event or disability of the vessel but upon the management's instruction to the captain, both the shipowner and the ship agent are liable for the damage caused.

It is the duty of the captain to continue the voyage without delay after the cause of arrival under stress has ceased failing in such duty renders him liable. However, in case the cause was risk of enemies, there must be an assembly before departure (Art. 825, Code of Commerce)

Read: Sweet Lines v. Court of AppealsG.R. No. L-46340. April 28, 1983

3. COLLISION

Collision is an impact or sudden contact of a moving body with an obstruction in its line of motion. As applied in maritime commerce, collision is an impact or sudden contact of a vessel with another whether both are in motion or one is stationary.

Strictly speaking, collision refers to the contact of two moving vessel. If one vessel is moving while the other is stationary, the same is more appropriately called allision. Nevertheless, for purposes of applying the provisions of the Code, collision includes collision per se and allision.

Liability for negligence in the absence of contract is governed by the Civil Code provisions on quasi-delict. However, the liabilities of shipowners and ship agents as well as the captain or crew in collision cases is still governed by the Code of Commerce provisions on collision. Although collision may be said to involve maritime tort, the special rules under the Code of Commerce will govern the rights and liabilities of the persons involved.

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a. Some Nautical Rules to Determine Negligence

1. When two vessels are about to enter a port, the farther one must allow the nearer to enter first, if they collide, the fault is presumed to be imputable to the one who arrived later, unless it can be proved that there was no fault on its part.

2. When two vessels meet, the smaller should give the right of way to the larger one.3. A vessel leaving port should leave the way clear for another which may be entering the

same port.4. The vessel which leaves later is presumed to have collided against one which has left

earlier.5. There is a presumption against the vessel which sets sail in the night.6. There is a presumption against the vessel with spread sails which collides with another

which is at anchor and cannot move, even when the crew of the latter has received word to lift anchor, when there was no sufficient time to do so or there was fear of greater damage or other legitimate reason.

7. There is a presumption against an improperly moored vessel.8. There is a presumption against a vessel which has no buoys to indicate the location of its

anchors to prevent damage to vessels which may approach it.9. Vessels must have “proper look-outs” or persons trained as such and who have no other

duty aside therefrom.10. Where a steamship and as sailing vessel are approaching each other from opposite

directions, or on intersecting lines, the steamship from the moment the sailing vessel is seen, shall watch with the highest diligence her course and movements so as to be able to adopt such timely means of precaution as will necessarily prevent the two boats from coming in contact. The sailing vessel is required to keep her course unless the circumstances require otherwise.

b. Three divisions of time or zones in the collision of vessels

1. First zone – all time up to the moment when risk of collision begins. No rule is as yet applicable for none is necessary.

2. Second zone – time between moment when risk of collision begins and moment it becomes practical certainty. It is in this period where conduct of the vessels is primordial. It is in this zone that vessels must strictly observe nautical rules, unless a departure therefrom becomes necessary to avoid imminent danger.

3. Third zone – time when collision is certain and time of impact. An error in this zone would no longer be legally consequential.

Error in Extremis – sudden movement made by a faultless vessel during the third zone of collision with another vessel which is at fault during the 2nd zone. Even if such sudden movement is wrong, no responsibility will fall on said faultless vessel.

c. Rules on liability in cases of collision

1. One Vessel at Fault . The vessel at fault is liable for damage caused to innocent vessel as well as damages suffered by the owners of cargo of both vessels. (Art. 826 Code of Commerce)

2. Both vessel at fault . Each vessel must bear its own loss, but the shippers of both vessels may go against the shipowners who will be solidarily liable (Art. 827 Code of Commerce).

3. Vessel at fault not known. Each vessel must bear its own loss, but the shippers of both vessels may go against the shipowners who will be solidarily liable (Art. 828 Code of Commerce).

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Doctrine of Inscrutable Fault – In case of collision where it cannot be determined which between the two vessels was at fault, both vessels bear their respective damage, but both should be solidarily liable for damage to the cargo of both vessels.

4. Third vessel at fault . The third vessel will be liable for all losses and damages. (Art. 831 Code of Commerce)

5. Fortuitous event/force majeure. No liability. Each bears its own loss, (Art. 830, Code of Commerce) subject to the requirement under the Civil Code on natural disasters event regarding the exercise due diligence before, during and thereafter and there is no delay.

The doctrine of res ipsa loquitor applies in case a moving vessel strikes a stationary object, such as bridge post, dock, or navigational aid.

Even if the cause of action against the common carrier is based on quasi delict, the defense of due diligence in the selection and supervision of employees is unavailing in case of a maritime tort resulting in collision. It is not a civil tort governed by the Civil Code but a maritime one governed by the Civil Code but a maritime one governed by Arts. 826-839 of the Code of Commerce. (Manila Steamship vs. Insa Abdulhaman, 100 Phil. 132).

Doctrine of Last Clear Chance and Rule on Contributory Negligence cannot be applied in collision cases because of Art. 827 of the Code of Commerce.

Read: National Development Company v. Court of Appeals G.R. No. L-494076, August 19, 1988

Urrutia and Co. vs. Baco River Plantation Co. GR No. 7675 March 25, 1913Smith Bell and Co. v. Court of AppealsG.R. No. 56294, May 20, 1991Manila Steamship vs. Insa AbdulhamanG.R. No. L-9534.  September 29, 1956

4. SHIPWRECK

Shipwreck has been defined as the “demolition or shattering of a vessel caused by her driving ashore or on rocks and shoals in the midseas, or by the violence of winds and waves in tempests. It is the loss of the vessel at sea as a consequence of its grounding, or running against an object in sea or on the coast. It occurs when the vessel sustains injuries due to a marine peril rendering her incapable of navigation.

If the wreck was due to malice, negligence or lack of skill of the captain, or because the vessel put to sea was insufficiently repaired and equipped the owner of the vessel or the shippers may demand indemnity from said captain. (Art. 841, Code of Commerce)

The rules on collision, as may be pertinent, can equally apply to shipwrecks.

5. Maritime Protest

Maritime protest is a condition precedent or prerequisite to recovery of damages arising from collisions and other maritime accidents. It is written statement made under oath by the captain of a vessel after the occurrence of an accident or disaster, in which the vessel or cargo is lost or damaged, with respect to the circumstances attending such occurrence, for the purpose of recovering losses and damages.

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However, the absence of protest may not prejudice the persons interest who were not on board or were not in a condition to make known their wishes (Art. 836, Code of Commerce)

The protest shall be made by the Captain within 24 hours from the time the collision or accident took place. The protest shall be made before the competent authority at the point of collision or at the first port of arrival, if in the Philippines and to the Philippine consul, if the collision took place abroad.

The requirement that protest must be made within 24 hours does not apply to small boats engaged in river and bay traffic and inland navigation. The requirement applies only to ships and sea going vessels.

a. Cases where applicable:1. Collision (Art 835);2. Arrival under stress (Art. 612 [8]);3. Shipwrecks (Arts. 612 [15], 843);4. Where the vessel has gone through a hurricane or when the captain believes that the

cargo has suffered damages or averages (Art. 624).

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