MARITIME COMMERCE (Arts. 573-869)

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 persons and property. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino & Hernando, citing Francisco, p.254)

Maritime laws apply only to maritime trade and sea voyages. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)

Arrastre service is not maritime in character. It refers to a contract for the unloading of goods from a vessel. (ICTSI vs. Prudential Guarantee, 320 SCRA 244)

CHARACTERISTICS OF MARITIME TRANSACTION1. Real - similar to transactions over real property with respect to effectivity against third persons which is done through registration. (Rubiso vs. Rivera, 37 Phil. 72). The evidence of real nature is shown by: 1) the limitation of the liability of the agents to the actual value of the vessel and the freight money; and 2) the right to retain the cargo and embargo and detention of the vessel (Luzon Stevedoring Corp v. CA, 156 SCRA 169);2. Hypothecary - the liability of the owner of the value of the vessel is limited to the vessel itself (Doctrine of Limited Liability).

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. (Aboitiz Shipping Corp. vs. General Accident Fire and Life Assurance Corp. 217 SCRA 359).

VESSEL-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 PD 43

MERCHANT VESSEL Vessel engaged in maritime commerce, whether foreign or otherwise. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.) Constitutes property which may be acquired and transferred by any of the means recognized by law. They shall continue to be considered as personal property. (Arts. 573, 585) They 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)

MARITIME LIEN It constitutes a present right of property in the ship, a jus in re, to be afterward enforced in admiralty by process in rem. (PNB vs. CA, 337 SCRA 381) If the maritime lien arose prior to the recording of a preferred mortgage, it shall have priority over the said mortgage lien. (PNB vs. CA, 337 SCRA 381)

ORDER OF PREFERENCE IN CASE OF SALE OF VESSEL

R.A. 6106 P.D. 1521Effectivity date

1969 1978Applicability

Overseas shipping only Both domestic and overseas shippingKind of sale

Judicial Judicial and extrajudicialOrder of Preference

A preferred mortgage 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 or 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; and6. Preferred mortgages registered prior in time.

The preferred 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; and7. Preferred mortgage registered prior in time.

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.

DOCTRINE OF LIMITED LIABILITY (HYPOTHECARY RULE) Cases where applicable:

1. Art. 587 – civil liability for indemnities to third persons2. Art. 590 – indemnities from negligent acts of the captain (not the shipowner or ship

agent)3. Art. 837 – collision

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

GENERAL RULE: 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. (Luzon Stevedoring v. Escano, 156 SCRA 169) The interest extends to: 1) the vessel itself; 2) equipments; 3) freightage; and 4) insurance proceeds. (Chua v. IAC, 166 SCRA 183)EXCEPTIONS: 1. Claims under Workmen’s Compensation (Abueg vs. San Diego 77 Phil 730);2. I njury or damage due to shipowner or to the concurring negligence of the shipowner and

the captain;3. The vessel is insured (Vasquez vs. CA 138 SCRA 553).4. Expenses for repair on vessel completed before loss;5. In case there is no total loss and the vessel is not abandoned;6. Collision between two negligent vessels;

Abandonment of the vessel is necessary to limit the liability of the shipowner. The only instance were abandonment is dispensed with is when the vessel is entirely lost (Luzon Stevedoring vs. CA 156 SCRA 169).

RIGHT OF SHIPOWNER OR SHIP AGENT TO ABANDON VESSEL Instances:1. In case of civil liability from indemnities to third persons (Art. 587);2. In case of leakage of at least ¾ of the contents of a cargo containing liquids (Art. 687); and3. In case of constructive loss of the vessel (Sec. 138, Insurance Code).

RIGHT OF ABANDONMENT

SHIPOWNER OR SHIP AGENT CONSIGNEEWhat may be abandoned

Vessel Goods shippedInstances

1. In case of civil liability from indemnities to third persons (Art. 587);2. Sec. 138, Insurance Code;3. In case of leakage of at least ¾ of the contents of a cargo containing liquids (Art. 687)

1. Partial non-delivery, where the goods are useless without the others (Art. 363);2. Goods are rendered useless for sale or consumption for the purposes for which they are properly destined (Art. 365); and3. In case of delay through the fault of the carrier (Art. 371).

Effects1. Transfer of ownership of the vessel from the shipowner to the shippers or insurer.2. In case of (2), the insurer must pay

1. Transfer of ownership on the goods from the shipper to the carrier.2. Carrier should pay the shipper the

the insured as if there was actual total loss of the vessel.

market value of the goods at the point of destination.

CAUSES OF REVOCATION OF VOYAGE1. War or interdiction of commerce;2. Blockade;3. Prohibition to receive cargo at destination;4. Embargo;5. Inability of the vessel to navigate. (Art. 640)

Terms:1. 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. Embargo – A proclamation or order of a state, usually issued 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.

PARTICIPANTS IN MARITIME COMMERCEA. Shipowners and ship agentsB. Captains and masters of the vesselC. Officers and crew of the vesselD. SupercargoesE. Pilot

A. SHIPOWNERS AND SHIP AGENTS Shipowner (proprietario) 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.

Ship agent (naviero) Person entrusted with provisioning and representing the vessel in the port in which it may be found; also includes the shipowner. Not a mere agent under civil law; he is solidarily liable with the ship owner. Powers and functions: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;

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.

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)

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)

Duty of Ship Agent to Discharge the Captain and Members of the Crew If the seamen contract is not for a definite period or voyage, he may discharge them at his discretion. (Art. 603) If for a definite period, he may not discharge them until after the fulfillment of their contracts, except on the following grounds:a. Insubordination in serious matters;b. Robbery;c. Theft;d. Habitual drunkenness;e. Damage caused to the vessel or to its cargo through malice or manifest or proven negligence. (Art. 605)

B. CAPTAINS AND MASTERS They are the chiefs or commanders of ships. The terms have the same meaning, but are particularly used in accordance with the size of the vessel governed and the scope of transportation, i.e., large and overseas, and small and coastwise, respectively. Nature of position (3-fold character):

1. General agent of the shipowner;2. Technical director of the vessel;3. Representative of the government of the country under whose flag he navigates.

Qualifications: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) Inherent powers:

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.5. Supply, equip, and provision the vessel; and6. Order repair of vessel to enable it to continue its voyage. (Art. 610)

Sources of funds to comply with the inherent powers of the captain (in successive order):1. From the consignee of the vessel;2. From the consignee of the cargo;3. By drawing on the ship agent;4. By a loan on bottomry;5. By sale of part of the cargo. (Art. 611)

Duties:

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)

A ship’s 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 (Inter-Orient Maritime Enterprises Inc. vs. CA).

No liability for the following:1. Damages caused to the vessel or to the cargo by force majeure;2. Obligations contracted for the repair, equipment, and provisioning of the vessel

unless he has expressly bound himself personally or has signed a bill of exchange or promissory note in his name. (Art. 620)

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. Thefts 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;8. Damages due to non-observance of marine regulations. (Art. 618)

C. OFFICERS AND CREW1. Sailing Mate/First Mate2. Second Mate3. Engineers4. Crew No liability under the following circumstances: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)

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) Duties:

1. Provide himself with maps and charts with astronomical tables necessary for the discharge of his duties;

2. Keep the Binnacle Book;3. Change the course of the voyage on consultation with the captain and the officers of

the boat, following the decision of the captain in case of disagreement;4. Responsible for all the damages caused to the vessel and the cargo by reason of his

negligence. (Arts. 628 - 631)

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

1. Preserve the hull and rigging of the vessel;2. Arrange well the cargo;3. Discipline the crew;4. Assign work to crew members;5. Inventory the rigging and equipment of the vessel, if laid up. (Art. 632)

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

1. In charge of the motor apparatus, spare parts, and other instruments pertaining to the engines;

2. Keep the engines and boilers in good condition;3. Not to change or repair the engine without authority of the captain;4. Inform the captain of any damage to the motor apparatus;5. Keep an Engine Book;6. Supervise all personnel maintaining the engine. (Art. 632)

Crew The aggregate of seamen who man a ship, or the ship’s company. Hired by the ship agent, where he is present and in his absence, the captain hires them, preferring Filipinos, and in their absence, he may take in foreigners, but not exceeding 1/5 of the crew. (Art. 634)

Classes of Seaman’s Contracts1. By the voyage;2. By the month; and3. By share of profits or freightage.

Just Causes for the Discharge of Seaman While Contract Subsists1. 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)

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)

Complement of the Vessel All persons on board, from the captain to the cabin boy, necessary for the management, maneuvers, and service, thus including the crew, the sailing mates, engineers, stokers and other employees on board not having specific designations. Does not include the passengers or the persons whom the vessel is transporting.

D. SUPERCARGOES Persons who discharges administrative duties assigned to him by ship agent or shippers, keeping an account and record of transaction as required in the accounting book of the captain. (Art. 649)

E. PILOT A person duly qualified, and licensed, to conduct a vessel into or out of ports, or in certain waters. 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. Master pro hac vice for the time being in the command and navigation of the ship. While in 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 or intoxicated (Far Eastern Shipping Company vs. CA). Compulsory Pilotage – States possessing harbors have enacted laws or promulgated rules requiring vessels approaching their ports to take on board pilots licensed under the local laws. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T. & Hernando, R.P. 2004 ed. p. 518)

Liablity of Pilot

GENERAL RULE: On compulsory pilotage grounds, the Harbor Pilot is responsible for damage to a vessel or to life or property due to his negligence.EXCEPT: 1. Accident caused by force majeure or natural calamity provided the pilot exercised prudence and extra diligence to prevent or minimize damages. 2. Countermand or overrule by the master of the vessel in which case the registered owner of the vessel is liable. (Sec.11, Art.III PPA Admin Order 03-85)

SPECIAL CONTRACTS OF MARITIME COMMERCE1. Charter party2. Bill of lading3. Contract of transportation of passengers on sea voyages4. Loan on bottomry5. Loan on respondentia6. Marine insurance

CHARTER PARTY A contract by virtue of which the owner or agent binds himself to transport merchandise or persons for a fixed price. A contract by which an entire ship, or some principal part thereof is let/leased by the owner to another person for a specified time or use. (Planters Products, Inc. vs. CA, 226 SCRA 476) Parties:

1. Ship owner or ship agent2. Charterer

Classes: 1. Bareboat or demise – The charterer provides crew, food and fuel. The charterer is liable as if he were the owner, except when the cause arises from the unworthiness of the vessel. 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 become the charter’s servants. It transforms a common carrier into a private carrier.

The charterer becomes the owner of the vessel pro hac vice, just for that one particular purpose only. Because the charterer is treated as owner pro hac vice, the charterer assumes the customary rights and liabilities of the shipowner to third persons and is held liable for the expense of the voyage and the wages of the seamen.

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

The shipowner retains the possession, command and navigation of the ship, the charterer merely having use of the space in the vessel in return for his payment of the charter hired. Kinds:a. Time charter – vessel is chartered for a fixed period of time or duration of voyage. b. Voyage or trip charter – the vessel is leased for one or series of voyages usually for

purposes of transporting goods for charterer.

LEASE CHARTER PARTY

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

The new owner is not compelled to respect the charter party so long as he can load the vessel with his own cargo. (Art. 689)

Civil law concept Commercial law concept

CHARTER PARTY BILL OF LADINGAn entire or complete contract. More like a private receipt which the

captain gives to accredit goods received from persons

Consensual contract Real contract

BAREBOAT OR DEMISE CHARTER CONTRACT OF AFFREIGHTMENT (TIME OR VOYAGE CHARTER)

Charterer becomes liable to others caused by its negligence

Owner remains liable as carrier and must answer for any breach of duty

Charterer regarded as owner pro hac vice for the voyage

Charterer is not regarded as owner.

Owner of vessel relinquishes possession, command and navigation to charterer

The vessel owner retains possession, command and navigation of the ship

Common carrier is converted to private carrier.

Common carrier is not converted to a private carrier.

PERSONS WHO MAY MAKE A CHARTER1. Owner or owners of the vessel, either in whole or in majority part, who have legal

control and possession of the vessel 2. Charterer may subcharter entire vessel to 3rd person only if not prohibited in original

charter. (Art.679)3. Ship agent if authorized by the owner/s or given such power in the certificate of

appointment. (Art.598)4. Captain in the absence of the ship agent or consignee and only if he acts in

accordance with the instructions of the agent or owner and protects the latter’s interests. (Art.609)

REQUISITES OF A VALID CHARTER PARTY1. Consent of the contracting parties2. Existing vessel which should be placed at the disposition of the shipper3. Freight

4. Compliance with Art. 652 of the Code of Commerce

Clauses Which May Be Included In a Charter Party

Jason clause Clause paramount or paramount clauseA 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. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)

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. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)

Rights and Obligations of Parties

SHIPOWNER OR SHIP AGENT CHARTERER1. If the vessel is chartered wholly, not to accept cargo from others;2. To observe represented capacity;3. To unload cargo clandestinely placed4. To substitute another vessel if load is less than 3/5 of capacity;5. To leave the port if the charterer does not bring the cargo within the lay days and extra lay days allowed;6. To place in a vessel in a condition to navigate;7. to bring cargo to nearest neutral port in case of war or blockade. (Arts. 669-678)

1. To pay the agreed charter price;2. To pay freightage on unboarded cargo;3. To pay losses to others for loading uncontracted cargo and illicit cargo;4. To wait if the vessel needs repair;5. To pay expenses for deviation. (Arts. 679-687)

Rescission of a Charter PartyAt charterer’s request

(Art 688)At shipowner’s request

(Art. 689)Fortuitous causes

(Art. 690)

1. By abandoning the charter and paying half of the freightage;2. Error in tonnage or flag;3. Failure to place the vessel at the charterer’s disposal;4. Return of the vessel due to pirates, enemies or bad

1. If the extra lay days terminate without the cargo being placed alongside the vessel;2. Sale by the owner of the vessel before loading by the charterer;

1. War or interdiction of commerce;2. Blockade;3. Prohibition to receive cargo;4. Embargo; and5. Inability of the vessel to navigate.

weather;5. Arrival at a port for repairs.

Terms: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.

USUAL FORMS OF CONSUMMATING CONTRACTS1. C.I.F. – cost, insurance and freight;2. F.O.B. - free on board;3. F.A.S. - free alongside ship; and4. C. & F. - cost and freight.

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. It is not dependent on the ownership of the transporting ships or in the change of carriers, but rather on the fact of actual physical transfer of cargo from one vessel 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. (Magellan Manufacturing vs. CA, 201 SCRA 102)

LOAN ON BOTTOMRY AND RESPONDENTIA A real, unilateral, aleatory contract, by virtue of which one person lends to another a certain amount of money or goods on things exposed to maritime risks, which amount, with its earnings, is to be returned if the things are safely transported, and which is lost if the latter are lost.

LOAN ON BOTTOMRY LOAN ON RESPONDENTIADefinition

Loan made by shipowner or ship agent guaranteed by vessel itself and repayable upon arrival of vessel at destination. (Art. 719)

Loan taken on security of the cargo laden on a vessel, and repayable upon safe arrival of cargo at destination. (Art. 719)

Who may contractShipowner or ship agent. Outside of the residence of the owners - the captain.

Only the owner of the cargo.

Common elements:1. Exposure of security to marine peril;2. Obligation of the debtor conditioned only upon safe arrival of the security at the point

of destination.Forms:

1. Public instrument2. Policy signed by the contracting parties and the broker taking part therein3. Private instrument (Art. 720)

Contents:1. Kind, name and registry of the vessel;2. Name, surname and domicile of the captain;3. Names, surnames and domiciles of the borrower and the lender;4. Amount of the loan and the premium stipulated;5. Time for repayment;6. Goods pledged to secure repayment;7. Voyage during which the risk is run (Art.721)

BOTTOMRY/ RESPONDENTIA ORDINARY LOAN (MUTUUM)

Not subject to Usury Law Subject to Usury Law

Liability of the borrower is contingent on the safe arrival of the vessel or cargo at destination

Not subject to any contingency (absolute liability)

The last lender is a preferred creditor The first lender is a preferred creditor

WHEN LOAN ON BOTTOMRY OR RESPONDENTIA REGARDED AS SIMPLE LOAN

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

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.727)

3. If the effects on which the money is taken is not subjected to any risk. (ART.729)

Note: Under existing laws, the parties to a loan, whether ordinary or maritime, may agree on any rate of interest. (CB Circular 905)

MARINE INSURANCE LOAN ON BOTTOMRY OR RESPONDENTIA

Indemnity is paid after the loss has occurred Indemnity is paid in advance by way

of a loanIn 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

Hypothecary Nature of Bottomry/ RespondentiaGENERAL RULE: 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.EXCEPTIONS:1. Loss due to inherent defect;2. Loss due to the barratry on the part of the captain;3. Loss due to the fault or malice of the borrower;4. The vessel was engaged in contraband; and5. The cargo loaded on the vessel be different in from that agreed upon.

Concurrence of Marine Insurance and Loan on Bottomry/Respondentia1. 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)2. 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)

Note: If a vessel is hypothecated by bottomry only the excess is insurable, since a loan on bottomry partakes of the nature likewise of an insurance coverage to the extent of the loan accommodation. The same rule would apply to the hypothecation of the cargo by respondentia. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)

ACCIDENTS IN MARITIME COMMERCE1. Averages 2. Arrival Under Stress 3. Collision 4. Shipwreck

AVERAGE 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) The person whose property has been saved must contribute to reimburse the damage caused or expense incurred if the situation constitutes general average. Classes:

1. Particular or Simple Average2. Gross or General Average

Where both vessel and cargo are saved, it is general average; where only the vessel or only the cargo is saved, it is particular average.

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. (A. Magsaysay, Inc. vs. Agan, G.R.No. L-6393, Jan. 31, 1955)

PARTICULAR OR SIMPLE GROSS OR GENERALDefinition

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)

Requisites1. common danger;2. deliberate sacrifice;3. success;4. proper formalities and legal steps.

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. (Art. 812) The insurers (Art.859) and lenders on bottomry and respondentia shall likewise contribute. (Art.732).

Number of interests involvedOnly one interest involved Several interests involved

Share in the damage or expense100% share In proportion to the value of the owner’s

property savedRight to recover

No reimbursement There may be reimbursementKinds (not exclusive)

Art. 809 Art. 811Procedure for recovery

1. Assembly and deliberation2. Resolution of the captain3. Entry of the resolution in the logbook4. Detailed minutes5. Delivery of the minutes to the maritime judicial authority of the first port, within 24 hours from arrival,6. Ratification by captain under oath. (Arts. 813-814)

GOODS NOT COVERED BY GENERAL AVERAGE EVEN IF SACRIFICED 1. Goods carried on deck. (ART.855)2. Goods not recorded in the books or records of the vessel. (ART.855 (2))3. Fuel for the vessel if there is more than sufficient fuel for the voyage. (Rule IX,

York-Antwerp Rule)

Jettison Act of throwing cargo overboard in order to lighten the vessel. Order of goods to be cast overboard:

1. Those which are on the deck, preferring the heaviest one with the least utility and value;

2. Those which are below the upper deck, beginning with the one with greatest weight and smallest value. (Art. 815)

Jettisoned goods are not res nullius nor deemed “abandoned” within the meaning of civil law so as to be the object of occupation by salvage. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.) 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)

York-Antwerp (Y-A) Rules on Determining Liability for Averages With Regard To Deck Cargo1. Deck cargo is allowed only in domestic/coastwise/inter-island 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. Reason: In domestic shipping, voyages are usually short and the seas are generally not rough. In overseas shipping, the vessel is exposed for many days to perils of the sea.

DOMESTIC INTERNATIONALDeck cargo is allowed Deck cargo is not allowed

With shipper’s consentGeneral average Particular average

Without shipper’s consentCaptain is liable Captain is liable

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.

When lawful When unlawful Who bears expenses:

The inability to continue voyage is due to lack of provisions, well-founded fear of seizure, privateers, pirates, or accidents of the sea disabling it to navigate. (Art. 819)

1. Lack of provisions due to negligence to carry according to usage and customs;2. Risk of enemy not well known or manifest3. Defect of vessel due to improper repair; and4. Malice, negligence, lack of foresight or skill of captain. (Art. 820)

The shipowner or ship agent is liable in case of unlawful arrival under stress. But they shall not be liable for the damages caused by reason of a lawful arrival. (Art. 821)

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

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.

COLLISION Impact of two vessels both of which are moving.

Allision Impact between a moving vessel and a stationary one.

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 not sufficient time to do so or there was fear of a 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. (Smith Bell v. CA)

Nautical Rules as to Sailing Vessel and Steamship1. Where a steamship and a 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.

2. The sailing vessel is required to keep her course unless the circumstances require otherwise.

Zones of Time in the Collision of Vessels1. First zone – covers all time up to the moment when risk of collision begins. No rule is as yet applicable for none is necessary. Each vessel is free to direct its course as it deems best without reference to the movements of the other vessel.2. Second zone – time between moment when risk of collision begins and moment it becomes a practical certainty. It is in this period where the vessel is required to keep away and avoid the danger3. Third zone – time when collision is certain and time of impact. An error in this zone would no longer be legally consequential.The vessel which has forced the privileged vessel into danger is responsible even if the p.vessel committed an error within that zone. 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. (Urrutia and Co. v. Baco River Plantation Co., 26 PHIL 632)

Cases Covered By Collision and Allision1. One vessel at fault 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)2. Both vessels 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)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)

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 losses and damages. (Art. 831)5. Fortuitous event/force majeure

No liability. Each bears its own loss. (Art. 830)

The doctrine of res ipsa loquitur applies in case a moving vessel strikes a stationary object, such as a bridge post, dock, or navigational aid. (Far Eastern Shipping v. CA, Luzon Stevedoring vs. CA)

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 Arts. 826-839 of the Code of Commerce. (Manila Steamship vs. Insa Abdulhaman)

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. (Notes and Cases on the Law on Transportation and Public Utilities, Aquino, T. & Hernando, R.P. 2004 ed.)

MARITIME PROTEST Condition precedent or prerequisite to recovery of damages arising from collisions and other maritime accidents. It is a 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. Excuses for not filing protest: 1) where the interested person is not on board the vessel; and 2) on collision time, need not be protested. (Art. 836) Cases 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). Who makes: Captain When made: within 24 hours from the time the collision took place. Before whom made: 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. (Art. 835)

SHIPWRECK 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, the owner of the vessel may demand indemnity from said captain. (Art. 841) The rules on collision or allision, as may be pertinent, can equally apply to shipwrecks.

SPECIAL CONCEPTSARRASTRE SERVICE

A contract for the unloading of goods from a vessel. Applicability: Overseas trade only. (Commercial Law Review, C. Villanueva, 2004 ed.) Significance: When a person brings in cargo from abroad, he cannot unload and deliver the cargo by himself. The unloading must be done by the arrastre operator, which will then deliver the cargo to the importer. (Commercial Law Review, C. Villanueva, 2004 ed.) Nature of business: It is a public utility, discharging functions which are heavily invested with public interest. Liability:1. Similar to a warehouseman (Lua Kian v. Manila Railroad)2. Similar to a common carrier (Northern Motors v. Prince Line) 3. Solidary liability with the common carrier

Note: In order that the arrastre operator may be held liable, the consignee must prove that the damage was due to the negligence and while the goods are in the custody of the arrastre operator. (Hartford Fire Insurance v. E. Razon, Inc.)

STEVEDORING SERVICE The carriage of goods from the warehouse or pier to the holds of the vessel. (Chief of Staff vs. CIR) As understood in the port business, the term consists of the handling of cargo from the hold of the ship to the dock, in case of pier-side unloading; or to a barge, in case of unloading at sea. (Anglo-Fil Trading Corp. vs. Lazaro) The loading on the ship of outgoing cargo is also part of stevedoring work. (Ibid.)

CONTAINERIZATION/ “SAID-TO-CONTAIN”/ “SHIPPER’S LOAD AND COUNT” SYSTEM System whereby the shipper loads his cargoes in a specially designed container, seals the container and delivers it to the carrier for transportation. The carrier does not participate in the counting of the merchandise for loading into the container, the actual loading, and the sealing of the container. (US Lines v. Comm. Of Customs, ICTSI v. Prudential Guarantee) The matter of quantity, description and conditions of the cargo inside the container is the sole responsibility of the shipper, unless there is stipulation to the contrary. (US Lines vs. Comm. Of Customs, Reyma Brokerage v. Phil. Home Assurance)

Note: In order to attribute to the carrier any damage to the shipment that may be found, inspection of the goods should be done at pier-side. (Bankers vs. CA)

III. CARRIAGE OF GOODS BY SEA ACT/COGSA (C.A. No. 65)

APPLICABILITY The transportation must be:

1. Water/maritime transportation;2. for the carriage of goods; and3. overseas/international/foreign (from foreign port to Philippine port).

It can be applied in domestic sea transportation if agreed upon by the parties. (Clause paramount or paramount clause)

IMPORTANT FEATURES:1. Amount of carrier’s liability2. Notice of damage3. Prescriptive period

AMOUNT OF CARRIER’S LIABILITY Under the Sec. 4(5), the liability limit is set at $500 per package or customary freight unit unless the nature and value of such goods is declared by the shipper. This is deemed incorporated in the bill of lading even if not mentioned in it. (Eastern Shipping vs. IAC, 150 SCRA 463) Note that Art. 1749, NCC applies to domestic/inter-island/coastwise trade.

NOTICE OF DAMAGE (SEC. 3(6)) Rules:a. Patent damage: shipper should file a claim with the carrier immediately upon deliveryb. Latent damage: shipper should file a claim with the carrier within three days from

delivery.

Note: The filing of a notice of claim is not a condition precedent.

PRESCRIPTIVE PERIOD Action for loss or damage to the cargo should be brought within one year after:

a. Delivery of the goods (delivered but damaged goods); orb. The date when the goods should have been delivered (non-delivery). (Sec. 3[6])

“Loss or Damage” as applied to the COGSA contemplates a situation where no delivery at all was made by the shipper of the goods because the same had perished, gone out of commerce, or disappeared in such a way that their existence is unknown or they cannot be recovered. Thus, it is inapplicable in case of misdelivery or conversion. (Ang vs. American Steamship Agencies Inc.) and damage arising from delay or late delivery (Mitsui O.S.K. Lines Ltd. vs. CA). In such instance the, Civil Code rules on prescription shall apply.

The one-year prescriptive period is suspended by:1. The express agreement of the parties (Universal Shipping Lines, Inc. vs. IAC, 188

SCRA 170)2. The filing of an action in court until it is dismissed. (Stevens & Co. vs. Nordeutscher

Lloyd, 6 SCRA 180)

The one-year period shall run from delivery of the last package and is not suspended by extrajudicial demand. (Dole Phils.,Inc. vs. Maritime Co.,148 SCRA 118)

The one-year period shall run from delivery to the arrastre operator and not to the consignee. (Union Carbide Phils, Inc. vs. Manila Railroad Co.,SCRA 359)

The insurer exercising its right of subrogation is bound by the one-year prescriptive period. However, it does not apply to the claim against the insurer for the insurance

proceeds. (Fil. Merchants Ins. Co. vs. Alejandro; Mayer Steel Pipe Corp. vs. CA)