Loans on Bottomry and Respondentia

A loan on bottomry or respondentia is defined by law as a loan in which the repayment

of the sum loaned and of the premium stipulated depends upon the safe arrival in port
of the goods on which it is made, or of the price they may receive in case of accident
(Art. 719. Code of Commerce). It is a real, unilateral and 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.

Aleatory contract

An aleatory contract is a contract in which, under any condition whatsoever, the

performance of one or both parties is contingent upon the occurrence of a particular
event. The most common type of this kind of contract is an insurance policy. The term
"aleatory" means "depending on a contingent event."

 Distinctions between a loan on bottomry and loan on respondentia

  

LOAN ON BOTTOMRY LOAN ON RESPONDENTIA

Definition
A loan on bottomry is a loan made by ship A loan on respondentia is one taken on security
owner or ship agent guaranteed by the vessel of the cargo loaded in a vessel and subject to
itself and repayable upon the arrival of the the repayment upon the safe arrival of the cargo
vessel at its destination. at its destination.
Who may contract
The shipowner or ship agent. If outside the Only the owner of the cargo
residence of the owner, the captain.
Elements of both contracts
1. the securities of both are exposed to marine peril; and

2. The obligation of the debtor is conditioned only upon the safe arrival of the security at the
point of destination
Means by which the contract may be executed
1. By means of a public instrument;
2. By means of a policy signed by the contracting parties and broker taking part therein; or

3. By means of a private instrument.

Statements required to be made in the contract
1. The kind, name, and registry of the vessel;

2. The name, surname, and domicile of the captain;

3. The names, surnames, and domiciles of the person giving and the person receiving the loan

4. The amount of the loan and the premium stipulated;

5. The time for repayment;

6. The goods pledge to secure repayment; and

The voyage during which the risk is run.

Requisites of loan on bottomry or respondentia

The requirements of a loan on bottomry or respondentia are as follows:

1. The shipowner borrows money for the use,equipment or repair of the vessel;

2. The loan is for a definite term and with extraordinary Interest called premium;

3. It is secured by a pledge of the vessel or a portion thereof in the case of loan on
bottomry or a pledge of the goods with respect to respondentia;

4. The repayment of the loan depends or is conditioned on the safe arrival of the vessel
(for bottomry) or the safe arrival of the goods (for respondentia) and the obligation to
repay is extinguished if the pledged goods are lost; and

5. The obligation to repay is extinguished if the vessel is lost due to specified marine
perils in the course of the voyage or within the limited time.
 

When loan on bottomry or respondentia treated as a simple loan

A loan on bottomry or respondentia shall be regarded as a simple loan in the following

instances:

1. If the lender should prove that he loaned an amount larger than the value of the
object liable for the bottomry loan, on account of fraudulent measures employed by the
borrower, the loan shall be valid only for the amount at which said object is appraised
by experts. The surplus principal shall be returned with legal interests for the en tire time
required for repayment (Art. 726, Id.);

2. If the full amount of the loan contracted in order to load the vessel should not be
used for the cargo, the balance shall be returned before clear ing. The same procedure
shall be observed with regard to the goods taken as loan, if they were not loaded (Art.
727, Id.); and

3. Should the goods on which money is taken not be subjected to risk, the contract shall
be considered a simple loan, with the obligation on the part of the borrower to return
the principal and interest at the legal rate, if that agreed upon should not be lower
(Ibid.).

Interest rate on the loan; Usury law and CB Circular 905-92

Under Central Bank Circular No. 905-82, the parties to a loan, whether ordinary or
maritime, may agree on any rate of Interest. Section 1 thereof provides that: "The rate of
interest, including commissions, premiums, fees and other charges, on any loan, or
forbearance of any money, goods or credits, regardless of maturity and whether secured
or unsecured, shall not be subject to any celling prescribed under or pursuant to the
Usury Law, as amended."

The caveat, however, is that while C.B. Circular No. 905-82, which took effect on January
1, 1983, effectively removed the ceiling on the interest rates for both secured and
unsecured loans, regardless of maturity (Dio vs. Japor, G.R. No. 154129, July 8, 2005, 463
SCRA 170), nothing in the said circular grants catre blanche authority to lenders to raise
interest rates to levels which would either enslave their borrowers or lead to lead to a
hemorrhaging of their assets (Almeda vs. Court of Appeals, G.R. 113412, April 17, 1996,
256 SCRA 292)

Distinction between a loan on bottomry or respondentia and marine insurance

Loan on bottomry or respondentia Marine insurance

1. It is a real contract. 1. It is a consensual contract
2. In case of loss of the vessel dur to marine 2. In case of loss of the vessel due to risk
peril, the obligation of the borrower to pay is insured against, the obligation of the insurer
extinguished. becomes absolute.
3. The indemnity is paid in advance by way of The indemnity is paid after the loss has
loan. occurred.

Hypothecary nature of bottomry and respondentia

The general rule is that 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 the goods were on board. The
exceptions of this rule are:

1. When the loss was caused by inherent defect of the thing;

2. When the loss was through the fault or malice of the borrower;

3. When the loss was through the barratry on the part of the captain;

4. When the loss was caused by the damages suffered by the vessel; and

5. When the loss arose from having loaded the merchandise on a vessel different from
that designated in the contract, unless this change should have been made by reason of
force majeure (Art. 731, Code of Commerce).

Hypothecary
As previously mentioned elsewhere in this work, the word "hypothecary" comes from
the Medieval Latin "hypothecare" which means "to pledge property to answer for a
debt." To hypothecate therefore means "to pledge a particular property as collateral or
security for a loan without the necessity of delivering the title or possession thereof to
the lender."

Barratry defined

Barratry in maritime law refers to acts of fraud or gross negligence of a ship's master or
crew committed at the expense of its owners or other parties.

Barratry clause

A barratry clause is a clause which provides that there can be no recovery on the policy
in case of any willful mis conduct on the part of the master or crew in pursuance of
some unlawful or fraudulent purpose without the consent of the owner and to the
prejudice of owner's interest. It requires an intentional and willful act in its commission.
No honest error or judgment or mere negligence, unless criminally gross, can be
barratry (Roque us. Intermediate Appellate Court, G.R. No. L-66935. Nov. 11, 1985, 139
SCRA 596).

Marine insurance and loan on bottomry and respondentia

Marine insurance and loan on bottomry and respondentia concur in the following
respects:

1. The insurable interest of the shipowner hypothecated by bottomry is only the excess
of the value over the amount secured by bottomry (Sec. 101, Insurance Code); and

2. The value of what is saved in case of a shipwreck shall be divided between the lender
and the insurer in proportion to their respective interests. (Art. 735, Code of Commerce)

 
 

AVERAGES

Averages include all extraordinary or accidental expenses which may be incurred during
the voyage in order to preserve the vessel, the cargo, or both as well as any damages or
deteriorations which the vessel may suffer from the time it departs from the port of
departure until it arrives in the port of destination, and those suffered by the goods
from the time they are loaded in the port of shipment until they are unloaded in the
port of their consignment (Art. 806, Code of Commerce),

Ordinary expenses

Ordinary expenses comprise the petty and ordinary expenses incident to navigation,
such as those of pilotage of coasts and ports, those of lighterage and towage, anchor
age, inspection, health, quarantine, lazaretto, and other so called port expenses, costs of
barges and unloading until the merchandise is placed on the wharf, and any other usual
expenses of navigation to be defrayed by the shipowner, unless there is an express
agreement to the contrary (Art. 807, Id.).

Kinds of averages

Averages are of the following types:

- Simple or particular average; and

- General or gross average (Art. 808, Id.).

The rule in this jurisdiction is that where both the vessel and the cargo are saved, it is
considered as general or gross average and where only the vessel or only the cargo is
saved, it is deemed to be a simple or particular average.

Simple or particular averages

Simple or particular averages include all the expenses and damages caused to the vessel
or to her cargo which have not inured to the common benefit and profit of all the
persons interested in the vessel and her cargo (Art. 809, Id.).

The owner of the goods which gave rise to the expense or suffered the damage shall
bear the simple or particular averages (Art. 810, Id.).

General or gross averages

As a general rule, general or gross averages include all the damages and expenses which
are deliberately caused in order to save the vessel, its cargo, or both at the same time,
from a real and known risk (Art. 811, Id.).

Requisites for general average

The following are the requisites for general average:

· That there must be a common danger;

· That for the common safety part of the vessel or of the cargo or both is sacrificed
deliberately;

· That from the expenses or damages caused follows the successful saving of the vessel
and cargo; and

· That the expenses or damages should have been incurred or inflicted after taking
proper legal steps and authority.

That there must be a common danger means that both 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. This last requirement excludes measures undertaken against a distant peril.
(Tolentino in his commentaries on the Code of Commerce. Vol. I. 7th ed. p. 155).

As a general rule, the sacrifice referred to in the above second requisite is made through
the jettison of the cargo or part of the ship is thrown overboard during the voyage. The
exceptions to this rule are:

· where the sinking of a vessel is necessary to extinguish a fire in a port, roadsteads,

creek or bay. and

· where cargo is transferred to lighten the ship on account of a storm to facilitate entry
into a port (See Arts. 816-818, Code of Commerce).

Procedure for recovery expenses for gross average

In order to incur the expenses and cause the damages corresponding to gross average,
the following requirements must be complied with:

· assembly and deliberation;

· resolution of the captain:

· entry of the resolution in the logbook:

· detailed minutes;

· delivery of the minutes to the maritime judicial authority of the first port within twenty
four (24)hours from arrival: and

· ratification of the captain under oath (Arts. 813 and 814. Id.).

Contribution to the general average

Under the Code of Commerce, 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, Id.). The insurers (Art. 859, Id.) and the lenders on bottomry and
respondentia shall likewise contribute (Art. 732, Id.). Several interests are involved and
their share of expense or damage shall be in proportion to value of the owner's property
saved.

A claimant (ship or cargo) is not entitled to obtain contribution from the other parties
even if there is common danger when he or his employees are at fault or negligent in
law.

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

Expenses incurred to refloat a vessel, which accidentally ran aground, in order to

continue its voyage do not constitute general average as the vessel and its cargo are in
no imminent danger or a danger. What constitutes the essence of general average is the
deliverance of the subject property from an immediate, impending peril by a common
sacrifice (The Columbian Insurance Company of Alexandria us. Ashby & Stribling et al.
13 Peters 331; 10 L. Ed., 186). Moreover, it is the safety of the property and not the
voyage which constitutes the true foundation of the general average (A. Magsaysay. Inc.
us. Agan, GR No. L-6393, January 31, 1955).

In order to satisfy the amount of the gross or general averages, all the persons having
an interest in the vessel and cargo therein at the time of the occurrence of the average
shall contribute (Art. 812, Code of Commerce).

Jettison defined

Jettison is the act of casting or throwing goods or cargo overboard in order to lighten a
vessel or to improve its stability during an emergency situation.

Goods subject of jettison are not considered as res nullius (nobody's property) nor
deemed as "abandoned" in the context of civil law in order to be the object of
occupation by salvage (Pandect of Commercial Law and Jurisprudence, Justice Jose
Vitug, 1997 ed.).

Order of goods or cargo to be jettisoned or cast over board

The goods shall be jettisoned and cast overboard upon direction of the captain in the
following order:

1. Those which are on deck, beginning with those which embarrass the maneuver or
damage of the vessel, preferring, If possible, the heaviest ones with the least utility and
value; and

2. Those which are below the upper deck, always beginning with those of the greatest
weight and smallest value, to the amount and number absolutely indispensable (Art.
815, Code of Commerce)

Cargo not covered by general average

The following articles are not covered by the general average even if they are sacrificed:

1. Goods carried on the upper deck of the vessel (Art. 855, Id.):

2. Goods not included in the bills of lading or inventories of the vessel (Ibid.); and

3. Fuel for the vessel if there is more than sufficient fuel for the voyage (Rule IX, York-
Antwerp Rule).

In any case, the shipowner and the captain shall be li- able to the shippers for the
damages from the jettison if the storage on the upper deck was made without the
consent of the latter (Art. 855, supra).

Rationale for the rule on deck cargo

Ordinarily, the loss of cargo carried on deck is not considered a general average loss.
This is clearly expressed in Rule I of the York-Antwerp Rules, as follows: "No jettison of
deck cargo shall be made good as general average." The reason for this rule is found in
the fact that deck cargo is in an extra-hazardous position and, if on a sailing vessel. its
presence is likely to obstruct the free action of the crew in managing the ship. Moreover,
especially in the case of small vessels, it renders the boat top-heavy and thus may have
to be cast overboard sooner than would be necessary if were in the hold, and naturally it
is always the first cargo to go over in case of emergency. Indeed, in Subsection I of
Article 815 of the Code of Commerce, it is expressly declared that deck cargo shall be
cast overboard before cargo stowed in the hold Standard Oil Company of New York us.
Castelo, GR No. L-13695, October 18, 1921, 42 Phil. 256).

Rule different in coastwise and inland waters navigation

The rule denying deck cargo the right to contribution by way of general average in case
of jettison was first made in the days of sailing vessels, and with the advent of the steam
ship as the principal conveyer of cargo by sea, it has been felt that the reason for the
rule has become less weighty, es- pecially with reference to coastwise trade; and it is
now gen erally held that jettisoned goods carried on deck, according to the custom of
trade, by steam vessels navigating coast wise and inland waters, are entitled to
contribution as a general average loss (24 R. C. L., 1419).

The reason for adopting a more liberal rule with respect to deck cargo on vessels used
in the coastwise trade than upon those used for ordinary ocean borne traffic is to be
found of course in the circumstance that in the coastwise trade the boats are small and
voyages are short, with the result that the coasting vessel can use more circumspection
about the condition of the weather at the time of departure and if threatening weather
arises, she can often reach a port of safety before disaster overtakes her. Another
consideration is that the coastwise trade must as a matter of public policy be
encouraged, and domestic traffic must be permit ted under such conditions as are
practically possible even if not altogether ideal (Standard Oil Company of New York vs.
Castelo, supra).

Requisites for inclusion of jettisoned goods in the general average

In order that the goods jettisoned may be included in the gross or general average and
the owners thereof be entitled to indemnity, it shall be necessary insofar as the cargo is
concerned that their existence on board be proven by means of the bill of lading and
with regard to those belonging to the vessel, by means of the inventory prepared before
the departure (Art. 816, Code of Commerce).