Chapter 7 The Aircraft and Civil Aviation
be registered if utilized by members of aero clubs
Applicable Laws
The New Civil Code provisions on Common
Carriers apply to transportation by air.
1.Special Laws
a. RA 9497 or Civil Aviation Authority Act of 2008
b. Economic regulation of air transportation by RA
776
c. Regulations issued by Civil Aeronautics Board
2.Treaties and conventions
a. Warsaw Convention as to liabilities of the carriers
in international transportation by air.
b. Chicago Convention
Civil Aviation
Aeronautics or aviation refers to science and art of
flight.
Civil aviation refers to the operation of any civil
aircraft for the purpose of general aviation
operations, aerial work or commercial air transport
operations.
Aircraft refers to any machine that can derive support
in the atmosphere from the reactions of the air other
than the reactions of the air against the earth’s
surface.
Registration of Aircraft
Philippine aircraft means an aircraft registered in the
Philippines in accordance with the requirements of
the Civil Aviation Authority Act of 2008.
The Chicago convention provides that an aircraft
cannot be validly registered in more than one State,
but its registration may be changed from one state to
another.
The State of Registry refers to the State on whose
register the aircraft is entered. The Certificate of
Registration issued by CAAP shall be deemed
conclusive evidence of nationality for international
purposes.
The registry of aircraft and any transfer, lien,
mortgage or other interests in aircraft or aircraft
engines is maintained by CAAP. The CAAP is given
the sole authority to register aircraft and liens,
mortgages or other interests in aircraft or aircraft
engines.
a. The aircraft is owned by or leased to citizen or
citizens of the Philippines or corporations or
associations organized under the laws of the
Philippines at least 60% of whose capital stock is
owned by Filipino citizens;
b. The aircraft is not registered under the laws of
any foreign country.
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Exception: foreign owned or registered aircraft may
organized for recreation, sport or the development of
flying skills as a prerequisite to any aeronautical
activities of such clubs within the Philippine airspace.
c. Must be displayed permanent marking of
nationality and registration marks.
d. The Certificate of registration is conclusive
evidence of ownership, except in a proceeding where
such ownership is, or may be at issue.
Recording of Conveyance
All conveyances made or executed which affects the
title or interest in any aircraft of Philippine registry or
any portion thereof shall be registered with CAAP.
a. The registration is valid only with respect to the
parties and their heirs, assignees, executors,
administrators, devisees, or successors in interest,
and any person having actual notice thereof;
b. The registration is valid as against all persons
and any instrument, recording of which is required
shall take effect from the date of its record in the
books of the Authority, and not from the date of its
execution. The owner’s duplicate of the certificate of
registration must be presented before registration is
effected.
Marine Insurance
Insurance over aircrafts falls within the coverage of
Marine Insurance under the Insurance code.
Air Transportation in general
Air commerce or air commercial air transportation
operation refers to and includes scheduled or non
scheduled air transport services for pay or hire, the
navigation of aircraft in furtherance of a business, the
navigation of aircraft from one place to another for
operation in the conduct of a business, or an aircraft
operation involving the transport of passengers or
cargo or mail for renumeration or hire.
Domestic air commerce includes air commerce within
the limits of Philippine territory.
Domestic air transport means air transportation
within the limits of the Philippine territory.
Foreign air transport refers to air transportation
between the Philippines and any place outside it or
wholly outside the Philippines
International commercial air transport refers to the
carriage by aircraft of persons or property for
renumeration or hire or the carriage of mail between
any two or more countries.
Persons involved in air transportation
1.Air carrier or operator refers to a person who
undertakes, whether directly or indirectly, or by lease
or any arrangements, to engage in air transportation
services or air commerce;
2.Philippine air carrier means an air carrier who is a
citizen of the Philippines
3.Foreign air carrier or foreign air operator means
any operator, not being a Philippine air operator,
which undertakes, whether directly or indirectly or by
lease or any other arrangement, to engage in
commercial air transport operations within the
borders or airspace of the Philippines, whether on a
scheduled or chartered basis.
4. Airman refers to individual who engages as the
person in command or as a pilot, mechanic,
aeronautical engineer, flight radio operator or
member of the crew or any person in charge of
inspection, maintenance, overhauling or repair of any
part of the aircraft.
Others
1. General Sales Agent means a person, who,
pursuant to an authority from an airline, by itself or
through an agent, sells or offers for sale any air
transportation or negotiates for or holds himself by
solicitation, advertisement, or otherwise as one who
sells, provides, furnishes, contracts, or arranges for
such air transportation.
2. Cargo Sales Agent means any person who does
not directly operate an aircraft for the purpose of
engaging in air transportation or air commerce and
who, as principal or agent, sells or offers for sale any
air transportation or negotiates for or holds himself by
solicitation, advertisement, or otherwise as one who
sells, provides, furnishes, contracts, or arranges for
such air transportation of cargo.
3. Air freight forwarders means any indirect air carrier
which, in the ordinary and usual course of its
undertaking, assembles and consolidates or provides
for assembling and consolidating such property and
performs or provides for the performance of the
break-bulking and distributing operations with respect
to consolidate shipments, and is responsible for the
transportation of property from the point of receipt to
the point of destination and utilizes for the whole or
any part of such transportation the services of a
direct air carrier.
4. Offline Carrier means any foreigner air carrier not
certified by the board, but who maintains office or
who has designated or appointed agents or
employees in the Philippines who sells or offers for
sale any air transportation or negotiates for or holds
himself by solicitation, advertisement, or otherwise as
one who sells, provides, furnishes, contracts, or
arranges for such air transportation.
5. Air Taxi Operator means an air carrier utilizing
small aircraft for charter trip and or individual service
transportation within the territory of the Republic of
the Philippines with proper certification and permit
from CAB.
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Charter of Aircraft
Charter flight or charter trip means air transportation
performed by an air carrier where the entire capacity
if one or more aircraft, or less than the entire capacity
of an aircraft, has been engaged for the movement of
persons and their personnel baggage or for the
movement of property on a time, mileage or trip
basis.
a. By a person for his own use;
b. By a representative of a group for the use of such
group;
c. By an airfreight forwarded holding a currently
effective permit.
Classified as:
1. On route charter shall refer to service performed
by an air carrier between points which said carrier is
authorized to provide service pursuant to its
certificate of public convenience and necessity or
foreign air carrier permit.
2. Pro rata charter means a charter the cost of which
is divided among passengers transported.
3. Single Entity Charter means a charter the cost of
which is borne by the charterer and not by individual
passengers, directly or indirectly;
4. Mixed Charter means a charter the cost of which is
borne or pursuant to a contract my be borne, partly
by the charter participants and partly by charterer.
Sovereignty and Air Freedoms
The fundamental principle stated in the Chicago
convention relates to the sovereignty of the
contracting States. Article 1 thereof provides that “the
contracting states recognize that every state has
complete and exclusive sovereignty over the
airspace above its territory. “Hence, consent is
necessary for other states to operate within the
territory of another.
The Bilateral system of air traffic negotiation is in
force under the Chicago Convention. Before airlines
of treaty partners are enable to launch air services to,
through and from another partner’s territory, the
convention requires that the two governments shall
have negotiated a bilateral treaty between them that
will define the air traffic rights each grants to the
other during the life of the treaty. The resulting
agreement is known as Air Service Agreement.
Freedom of the Air
The air traffic rights that may be agreed in the Air
Services Agreement upon.
1st Freedom of the air refers to the right or privilege,
in respect of scheduled international air services,
granted by one State to another State or States to fly
across its territory without landing.

2nd Freedom of the air refers to the right or privilege,
in respect of scheduled international air services,
granted by one State to another State or States to
land in its territory for non-traffic purposes.
3rd Freedom of the air refers to the right or privilege,
in respect of scheduled international air services,
granted by one State to another State to put down, in
the territory of the first state, traffic coming from the
home state of the carrier.
4th Freedom of the air refers to the right or privilege,
in respect of scheduled international air services,
granted by one State to another State to take on, in
the territory of the first state, traffic destined for the
home state of the carrier.
5th Freedom of the air refers to the right or privilege,
in respect of scheduled international air services,
granted by one State to another State to put down
and to take on, in the territory of the first State, traffic
coming from or destined to a third state.
6th Freedom of the air refers to the right or privilege,
in respect of scheduled international air services, of
transporting, via the home State of the carrier, traffic
moving between two states.
7th Freedom of the air refers to the right or privilege,
in respect of scheduled international air services,
granted by one State to another State, of transporting
traffic between the territory of the granting State and
any third state with no requirement to include on
such operation any point in the territory of the
recipient state.
8th Freedom of the air refers to the right or privilege,
in respect of scheduled international air services,
granted by one State to another State, of transporting
cabotage traffic between two points in the territory of
the granting state on a service which originates or
terminates in the home country of the foreign carrier
or outside the territory of the granting state.
9th Freedom of the air refers to the right or privilege of
transporting cabotage traffic of the granting state on
a service performed entirely within the territory of the
granting state.
Cancellation of Commercial Agreement
The government through the CAB has the
indispensable to compel local air carriers to comply
with government determined policies, even at the
expense of economic rights. Section 10 of RA 776
grants to the CAB the “general supervision and
regulation of, and jurisdiction and control over, air
carriers as well as their property, property rights,
equipment, facilities and franchise.
Cabotage
Two types
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1. 8th Freedom of the air refers to the right or
privilege, in respect of scheduled international air
services, granted by one State to another State, of
transporting cabotage traffic between two points in
the territory of the granting state on a service which
originates or terminates in the home country of the
foreign carrier or outside the territory of the granting
state.
2. Stand Alone Cabotage which is the right or
privilege of transporting cabotage traffic of the
granting state on the a service performed entirely
within the territory of the granting State.
Chapter 8 Obligations of Carrier in the Air
Transportation
Extraordinary Diligence in Air Transportation
1. Airworthy means that the aircraft, its engineers,
propellers and other components and accessories,
are of proper design and construction.
a. Certification of aircraft and aeronautical
components;
b. Issuance of Certificate of Airworthiness and
other certifications for aeronautical products;
c. Continued airworthiness of aircraft and
aeronautical components;
d. Rebuilding and modifications of aircraft
aeronautical components;
e. Maintenance and preventive maintenance of
aircraft and aeronautical components;
f. Aircraft inspection requirements;
g. Air operator aircraft maintenance and
inspection requirements.
2. That the captain and his crew exercised extra
ordinary diligence in the operating the aircraft.
Tariff System
A tariff is a rule or condition of air travel that
regulates and binds the airline and passengers.
Tariffs are developed and imposed by air carrier with
the approval of the CAB. These tariffs are provided
for in the tickets that are binding although they are in
the nature of contracts of adhesion.
Care of Baggage
Liable in the following cases
1. The baggage of their passengers were either
damaged or its contents were lost or stolen;
2. The baggage were transported or diverted to
another place;
3. In case of off-loading of baggage;
4.When there was delay in the delivery of the
baggage;
5. If the baggage is lost altogether.
Duty to Passenger
1. Breach of contract is defined as the failure without
legal reason to comply with the terms of a contract. It
may be breached through delay, fraud or negligence.
2. Physical Injuries to passengers.
3. Downgrading and upgrading of passengers.
4. Delay and diversion of flight.
5. Rude treatment
6. Over-booking
7. Cancellation due to engine malfunction.
Denied boarding passengers
The general rule is that the air carrier is duty bound
to accept and board a passenger with confirmed
tickets if the passenger presents himself on time in
the airline counter in the airport. There would be
breach of contract on the part of the carrier if its
employees will refuse to accept the passenger with
confirmed tickets.
When the carrier may deny to transport the
passengers
1. It refuses to comply with the instruction regarding
exit seating restrictions prescribed by CAAP;
2. It has handicap that can be physically
accommodated only by an exit row seat;
3. While an air carrier will not be liable if the
passenger failed to present himself on time in the
airport counter, the burden of proving rests with
carrier;
4. When the denial is due to honest mistakes.
5. Overbooking of less than 10%
6. Priority rules
1. Thru passengers over originating passengers;
2. Connecting confirmed passengers;
3. Originating confirmed passengers;
4. Passengers with conditional reservation tickets;
5. Chance passengers
Cancellation is the act of calling off a flight with
uncertainty of knowing when such flight will happen.
Conditional reservation ticket means a ticket sold by
a domestic or foreign carrier on the basis of a
tentative listing on a specific flight, on a specific date,
and a class of service and for which space is
conditionally reserved.
Confirmed reserved space means space on a
specific date and on a specific flight and class of
service of a carrier which has been requested by a
passenger and which the carrier or this agent has
verified, by appropriate notation on the ticket, as
being reserved for the accommodation of destination
Delay is the act of deferring a flight to a later time.
Fare is payment in consideration for the carriage of a
passenger.
Regular fare is any rate that is offered on a regular
basis and does not qualify as promotional or special
fare such as free tickets provided by airlines to
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passengers, tickets available for free to employees,
and tickets claimed based on mileage.
Promotional fare is any fare other than regular fare; it
is a low, special, excursion, or apex fare which has
more fences or restrictions than a regular fare.
Scheduled Domestic Carrier referes to a Philippines
carrier granted a CPCN to operate scheduled or
regular service within points in the Philippines or to
and from the territory of the Philippines.
Scheduled Foreign Carrier refers to an air carrier
who is not a citizen of the Philippines, and or an air
carrier, at a point between the place of departure and
the place of destination.
Stop-over means a deliberate interruption of a
journey by the passenger, agreed to in advance by
the carrier at a point between the place of departure
and the place of destination.
Value of the first remaining flight coupon means the
applicable one-way fare, including any surcharge,
less any applicable discount on the sector where
boarding is denied.
Bill of Rights for Air Passenger
DTOC-DTI joint Administrative Order No. 1 series of
2012 dated December 12, 2012.
Air carrier ticket constitutes a contract of carriage
between an air carrier and a passenger, whereby the
air carrier, for consideration, obligates itself to
transport a passenger by air safely, efficiently and
conveniently along a stipulated route at a given date
and time subject to certain conditions and
restrictions.
It seeks to infuse a certain measure of balance,
fairness and reasonableness between the precarious
position of a passenger vis a vis vast resources at
the disposal of the air carrier.
2.4 Check-in deadline is usually not less than 45
minutes before ETD
2.5 Check-in period is atleast 2 hours before ETD in
international flight while atleast 1 hour for domestic
flight.
2.8 Delay is the result of the deferment of a flight to a
later time. It is either Terminal delay or Tarmac delay.
2.9 Denied check-in takes place when a passenger,
who has presented himself for check-in at the
appointed area and at the appointed time, is denied
or not processed for boarding a particular flight.
Denied Boarding takes place when a passenger after
compliance of all requirements but was not allowed
to board the aircraft.
2.12 No show is the failure of the passenger to
appear at the check-in counter within the check-in
deadline or to show up at the boarding gate at the
time indicated on the boarding pass.
2.13 Overbooking is the practice by an air carriers of
selling confirmed reserved space beyond the actual
seat capacity of the aircraft’
5.2 Every air carrier causing the publication of fare
advertisement in any medium, shall likewise disclose
the following;
a. Conditions and restrictions attached to the fare
type;
b. Refund and rebooking policies, if any;
c. Baggage allowance policies;
d. Government taxes and fuel surcharges;
e. Other mandatory fees and charges;
f. Contact details of the carrier
g. Other information necessary to apprise the
passenger of the conditions and the full/total price of
the ticket purchased
In case of promotional fare
h. Number of seats offered on a per sector basis;
i. The duration of the promo, and
j. The CAB approval no.
5.3 It should not be less than 1/3 of the advertising
material.
Section 10. Right to board aircraft for the purposes of
flight.
Exceptions even without his consent
a. Immigration Issues
b. Safety and security, health concerns
c. Non-appearance at the boarding gate at the
appointed boarding time
d. Government requisition of space
Section 12 Right to compensation
1. If the cancellation did not happen atleast 24
hours before ETD.
a. Notify the passenger via public announcement;
b. If already in the airport, provide for refreshment or
meals; hotel accommodation; transportation; free
phone calls.
c. Reimbursement
d. Endorsement to another air carrier without paying
additional charges;
e. Rebook without additional charges
2. Delay atleast 3 hours after the ETD
a. Provision for refreshment or meals; phone calls
and first aid
b. Rebook or refund
3. Delay more than 6 hours after ETD and carrier
is at fault
a. Additional compensation equivalent atleast the
value of the sector delayed or deemed cancelled to
be paid in the form of cash or voucher at the
discretion of the air carrie;
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b. The right to board the flight if it takes palce more
than 6 hours after the ETD and does not opt to
rebook or refund
Section 13 Right to compensation for delayed,
lost and damaged baggage
a. For every 24 hours of delay, 2,000 pesos
b. For International flight, applicable convention shall
apply
c. For domestic flight, a maximum amount equivalent
to half of the amount in the relevant convention in its
peso equivalent
d. After 7 days and cannot determine its
whereabouts, it is considered as permanently and
totally lost.
Section 15 Right to compensation in case of
death or bodily injury of a passenger.
a. For international flight, the relevant convention and
inter-carrier agreement shall apply.
b. For domestic flight, the compensation shall be
based on the stipulated amount in the relevant
convention which governs international flights, the
same to be given in peso denomination.
Inspection of Aircraft and Cargo
1. Air carrier or operators are authorized to open and
investigate suspicious packages and cargoes in the
presence of the owner or shipper. If refused, the
carrier can validly refuse the loading thereof;
2. Passenger and his hand-carried luggages are
subject to search for, and seizure of, prohibited
materials or substances. A holder who refuses to be
searched shall not be allowed to board the aircraft
and such condition shall constitute a part of the
contract between the passenger and the air carrier.
3. The Director General of the CAAP is authorized to
have access to all civil aircraft for their inspection and
detain civil aircraft if:
a. The aircraft may not be airworthy; or
b. The airman may not be qualified or physically or
mentally incapable for the flight; or
c. The operation would cause imminent danger to
persons or property on the ground.

Chapter 10 General Concepts
Maritime Law is the system of law which is
“particularly relates to the affairs and business of the
sea, to ships,, their crews and navigation, ant to
marine conveyance of persons and property.
It has also been defined as “ a corpus of rules,
concepts, and legal practices governing certain
centrally important concerns of the business of
carrying goods and passengers by water.
It is also defined as “ that system of law which
particularly relates to marine commerce and
navigation, to business transacted at sea or relating
to navigation, to ships and shipping, to seamen, to
the transportation of persons and property by sea
and to marine affairs generally.
Civil Code Primary Law
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The primary law on the maritime commerce is the
New Civil Code provisions on common carriers. The
Code of Commerce and special laws apply only
suppletorily.
Treaties and Conventions
The Philippines adopts the generally accepted
principles of international law as part of the law of the
land.
1. UNCLOS which contains provisions that are part
of maritime law.
2. International Maritime Organization.
3. International Conventions for the Safety of Life at
Sea.
4. Tonnage convention
There are instances when the Philippines has not yet
acceded to certain treaties but the provisions thereof
are being respected and or followed by Philippine
vessels not only because they are already ratified by
numerous states but also because they form part of
international customs such as Convention for the
International Regulations on the Prevention of
Collisions at sea has not yet been adhered to in this
country, the provisions thereof are being followed by
Philippine vessels.
Real and Hypothecary nature.
a. Limited liability rule: No vessel, No liability. It
expresses in a nutshell the limited liability rule. The
shipowner’s or agent’s liability is merely co-extensive
with his interest in the vessel such that a total loss
thereof results in its extinction. The total destruction
of the vessel extinguishes maritime liens because
there is no longer any res to which it can attach. The
liability of the vessel owner and agent arising from
the operation of such vessel were confined to the
vessel itself, its equipment, freight, and insurance, if
any, which limitation served to induce capitalists into
effectively wagering their resources against the
consideration of the large profits attainable in the
trade.
Statutory provisions
1. Article 587. The ship agent shall also be civilly
liable for the indemnities in favor of third persons
which may arise from the conduct of the captain in
the care of the goods which he loaded on the vessel;
but may exempt himself therefrom by abandoning the
vessel with all her equipment and the freight it may
have earned during the voyage.
2. Article 643. If the vessel and her cargo should be
totally lost, by reason of capture or wreck, all rights
shall be extinguished, both as regards the crew to
demand any wages whatsoever, and as regards the
ship agent to recover the advances made.
3. Article 837. The civil liability incurred by the
shipowners in the cases prescribed in this section,
shall be understood as limited to the value of the
vessel with all her appurtenances and freight earned
the voyage.
Coverage of limited liability
Article 837 applies the principle of limited liability in
cases of collision while Article 587 and 590 embody
the universal principle of limited liability in all cases.
However, in Aboitiz vs General Accident, articles
837, 587 and 590 covers only (1) liability to third
person, (2) acts of the captain and (3) collisions.
Since the Civil Code contains no provision regulating
liability of shipowners or agents in the event of total
loss or destruction of the vessel, it is the provisions of
the Code of Commerce, particularly, Article 587, that
govern.
If the vessel is co-owned, the limited liability to third
persons shall be satisfied by the co-owners in
accordance with the following rules.
Article 590, The co-owners of the vessels shall be
civilly liable in the proportion of their contribution to
the common fund for the results of the acts of the
captain, referred to in Article 587.
Each co-owner may exempt himself from this liability
by the abandonment, before an notary, of that part of
the vessel belonging to him.
Shipowner entitled to limited liability
It is the shipowner who is entitled to the benefit of
limited liability. Hence, the charterer cannot invoke
the limited liability rule against the former. Even if the
contract is for bareboat or demise charter where
possession, free administration and even navigation
are temporarily surrendered to the charterer,
dominion over the vessel remains with the
shipowner.
Exceptions to limited liability
1. Where the injury or death to a passenger is due
either to the fault of the shipowner, or to the
concurring negligence of the shipowner and the
captain.
2. Where the vessel is insured.
3. In workmen’s compensation claims.
4. Cost of repair of the vessel completed before its
loss.
Negligence of shipowner and agent
The limited liability rule applies if the captain or the
crew caused, the damage or injury. However, if the
failure to maintain the seaworthiness of the vessel
can be ascribed to the shipowner alone or the
shipowner with the captain, then limited liability
principle cannot be invoked.
Burden of Proof
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The carrier or shipowner has the burden of showing
that it exercised extraordinary diligence in the
transport of the goods it had on board in order to
invoke the limited liability doctrine. Differently put, to
limit its liability to the amount of the insurance
proceeds, the carrier has the burden of proving that
the unseaworthiness of its vessel was not due to its
fault or negligence. Where the shipowner fails to
overcome the presumption of negligence, the
doctrine of limited liability cannot be applied.
Abandonment
Abandonment of the vessel, its appurtenances and
freightage is an indispensable requirement before the
shipowner or ship agent can enjoy the benefits of the
limited liability principle. If the carrier does not want
to abandon the vessel, then he is still liable beyond
the value of the vessel. In PSC vs Garcia, it was held
that the rule is that in the case of collision,
abandonment of the vessel is necessary in order to
limit the liability of the shipowner or the agent to the
value of the vessel, its appurtenances and freightage
earned in the voyage in accordance with Article 837
of the Code of Commerce. The only instance where
such abandonment is dispensed with is when the
vessel was entirely lost. In such case, the obligation
is thereby extinguished.
Procedure for enforcement
The rights of a vessel owner or agent under the
limited liability rule is akin to those of the rights of
shareholders to limited liability under our corporation
law. 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. In the case of insolvent
corporation, these are the residual assets of the
corporation left over from its operations. In the case
of lost vessel, these are the insurance proceeds and
pending freightage for the particular voyage. Hence,
there is need to collate all claims preparatory to their
satisfaction from the insurance proceeds on the
vessel and its pending freightage at the time of loss.
Protest
It is a written statement by the master or vessel or
any authorized officer, attested by proper officer or a
notary, to the effect that damages has been suffered
by the ship. Protest is required under Code of
Commerce in the following cases:
1. When the vessel makes an arrival under stress.
2. Where the vessel is shipwreck.
3. Where the vessel has gone through a hurricane or
the captain believes that the cargo has suffered
damages or averages.
4. Maritime collision.
In collision, the maritime protest must be made within
24 hours after a collision and the circumstances of
the collision are declared or made known before a
competent authority at the point of accident or at the
first port of arrival if in the Philippines or Philippine GT and above, for hire or compensation in the
consul in a foreign country. domestic trade, and tankers which require coverage
except (1) Government owned ships not engaged in
Admiralty jurisdiction commerce, (2) Non-motorized wooden hulled ships;
(3) yacht and pleasure crafts.
Sec 19 ( 3 ) of BP 129 as amended provided that in
all actions where the demand or claim exceeds Marine insurance
Three hundred thousand pesos ( 300,000 ) or, in
Metro Manila, where such demand or claim exceeds Insurance Code and Domestic Shipping
Four hundred thousand pesos ( 400,000 ). Development Act of 2004 require mandatory
insurance coverage for passengers to meet the
Locational test wherein maritime and admiralty financial responsibility of domestic ship operator for
jurisdiction, with a few exceptions, is exercised only breach of contract carriage.
on contracts made upon a sea and to be executed
thereon. Persons Amount of Risk Insured
Covered Coverage against
/Nature of
Subject matter test depends not on the place where Compensatio
the contract is made in and is to be executed, making n
the locality test, but on the subject matter of the Passengers 200,000 Death
contract, making the true criterion a maritime service per
or a maritime transaction. passenger
Unmanifeste 200,000 Death
d per
Forfeiture due to smuggling Passengers passenger
Survivors 50,000 Survivorship
The penalty of forfeiture is imposed on any vessel Coverage /
engaged in smuggling under Tariff and Custom code Monetary
provided that the following conditions are present: Assistance
Surviving 50,000 per Monetary
Passengers passenger Assistance
1. The vessel is “used unlawfully in the importation or s
exportation of articles into a from” the Philippines.
2. The articles are imported to or exported from “any
Philippine port or place, except a port of entry,” or The amount of 50,000 shall be over and above the
3. If the vessel has a capacity of less than 30 tons medical and hospitalization expenses and
and is used in the importation of articles into any reasonable incidental expenses for burial, travel,
Philippine port or place other than a port of Sulu Sea, transfer, food, clothing, board, and lodging expenses
where importation in such vessel may be authorized covered by receipts.
by the Commissioner, with the approval of the
department head. Maritime accidents refer to an event which involves a
fire, explosion, grounding,
Marine Pollution collision/contact/capsizing/tilting, sinking, and other
similar occurrences resulting in death.
It provides that it is hereby declared a national policy
to prevent and control the pollution of seas by the Chapter 11 Vessels
dumping of wastes and other matter which create
hazards to human health, harm living resources and Vessel or watercraft is defined as “ any barge, lighter,
marine life, damage amenities, or interfere with the bulk carrier, passenger ship freighter, tanker,
legitimate uses of the sea within the territorial container ship, fishing boats, or other artificial
jurisdiction of the Philippines. contrivance utilizing any source of motive power,
designed, used or capable of being used as a means
Exceptions of transportation operating either as a common
carrier, including fishing vessels except:
1. Cases of emergency imperiling life or property;
2. Unavoidable accident or collision, or stranding or 1. Owned and or operated by the Armed Forces of
in any cases which constitute danger to human life or the Philippines
property; 2. Bancas, sailboats and other waterborne
3. The only way of averting the threat and if there is contrivance of less than three tons capacity and not
probability that damage consequent upon such motorized.
dumping will be less than would otherwise occur It also means any kind, class or type of craft or
4. Except by law or regulations by appropriate artificial contrivance capable of floating in water,
authority designed to be used, or capable of being used as a
means of water transport in the domestic trade for
Pollution insurance the carriage of passenger or cargo, or both, utilizing
its own motive power or that of another. In Lopez vs
It covers all persons, corporations, partnerships, Duruelo, it was held that Article 835 cannot be
cooperatives and entities operating any type of ships, applied to small boats engaged in river and bay
20 GT and above, including wooden hulled ships 35 traffic. Other vessels of a minor nature not engaged

8
in maritime commerce, such as river boats and those
carrying passengers from ship to shore, must be
governed by, as to their liability to passengers, by the
provisions of the Civil Code or other appropriate
special provisions of law.
Other vessels
Marina thru its memorandum no. 05 series 0f 2009
shall now govern the operation of motorized bancas
that are traditionally built watercraft, predominantly
wooden hulled and propelled mechanically, with or
without outrigger. The regulation requires the
registration of all motorized bancas and boat builder.
Kinds Vessels
1. A passenger ship is a ship which carries more
than twelve passengers.
2. A cargo ship is any ship which is not a passenger
ship.
3. A tanker is a cargo ship constructed or adapted for
the carriage in bulk of liquid cargoes of an
inflammable nature.
4. A fishing vessel is a vessel used for catching fish,
whales, seals, walrus or other living resources of the
sea.
5. A nuclear ship is ship provided with nuclear power
plant.
6. “New ship” means a ship the keel of which is laid
or which is ay a similar stage of construction on or
after the date of coming into force of the SOLAS
1974.
7. “Existing ship” means a ship which is not a new
ship.
Construction, equipment and manning
The construction, equipment and manning of the
vessel are subject to the rules issued by the MARINA
and Coast Guard and pertinent conventions like
SOLAS 1974 and Article 574 which requires boat
builders to employ the materials and system suitable
to their interest while as to shipowners and seaman,
they are required to observe the laws and regulation
relating to navigation, customs, health, safety of
vessels and other similar matters.
Vessel as personal property
Vessels are personal property under Article 416 of
the civil code while Article 585 states that for all
purposes of law not modified or restricted by the
provisions of this code, vessels shall continue to be
considered as personal property.
Acquisition
Vessels may be required or transferred by any
means recognized by law. Thus, vessels may be
sold, donated and may even be acquired through
prescription. Article 712 of the New Civil Code
provides that ownership and other real rights over
property are required and transmitted by law, by
donation, by estate and intestate succession, and in
9
consequence of certain contracts, by tradition, by
occupation and by means of prescription.
Under the present laws, vessels that are under the
jurisdiction of the MARINA can be transferred only
with approval of said administrative agency. In
addition, after the approval of the sale or transfer, it is
required that the buyer shall within 15 days from
approval of the MARINA secure a new Certificate of
Philippine Registry and Certificate of Ownership.
Further, Article 573 of the Code of Commerce
provides that the acquisition of a vessel must appear
in a written instrument, which shall not produce any
effect with respect to third persons if not inscribed in
the registry of vessels.
Prescriptions
Article 573 contains the rules on acquisition of a
vessels through prescription. The provision
contemplates two types of acquisitive prescription,
ordinary and extraordinary. Ordinary prescription
requires continuous possession in good faith for
three years while for extraordinary, the continuous
possession in good faith must be at least ten years.
The following requisites must concur before
ownership through ordinary prescription may be
established.
1. The person who claims ownership must be in
continuous possession;
2. The possession must be for a period of three
years; and
3. Possession must be in good faith.
Possession in good faith presupposes possession in
the concept of an owner. A possessor is in good faith
if he is not aware of the flaw or defect in his title.
Accordingly, the co-owner, lessee, usufructuary,
trustee cannot be possessors in good faith if they are
in possession of such. They recognize the ownership
or right of another person or persons.
Sale
In contract of sale, the mode of transferring title or
ownership is tradition or delivery. Article 1477 of the
New Civil Code provides that ownership of the thing
sold shall be transferred to the vendee upon the
actual or constructive delivery thereof. The same
applies to vessels. However, the sale must be
registered with the MARINA to affect third persons.
Articles 576, 577 and the first two paragraphs of 587
relate to voluntary sale of vessels. The third and
fourth paragraphs of Articles 578 and 579 deal with
cases when the vessel is rendered useless for
navigation. Article 579 specifically deals with a
situation where the owner is constrained to sell the
vessel because repairs thereof are no longer
possible.
Article 578 of the same code governs the sale of
vessels in a foreign port. Said provision outlines the
formal and registration requirements in order that a
sale on voyage or in a foreign port becomes effective
as against third person. Hence, Article 578 does not
apply if the issue in a case involves the determination
as to which creditor is entitled to the proceeds of the
foreclosure sale of the vessels.
ARTICLE 576. In the sale of a vessel it shall always
be understood as included the rigging, masts, stores
and engine of a streamer appurtenant thereto, which
at the time belongs to the vendor. The arms,
munitions of war, provisions and fuel shall not be
considered as included in the sale.
The vendor shall be under the obligation to deliver to
the purchaser a certified copy of the record sheet of
the vessel in the registry up to the date of the sale.
ARTICLE 577. If the alienation of the vessel should
be made while it is on a voyage, the freightage which
it earns from the time it receives its last cargo shall
pertain entirely to the purchaser, and the payment of
the crew and other persons who make up its
complement for the same voyage shall be for his
account.
If the sale is made after the vessel has arrived at the
port of its destination, the freightage shall pertain to
the vendor, and the payment of the crew and other
individuals who make up its complement shall be for
his account, unless the contrary is stipulated in either
case.
ARTICLE 578. If the vessel being on a voyage or in a
foreign port, its owner or owners should voluntarily
alienate it, either to Filipinos or to foreigners
domiciled in the capital or in a port of another
country, the bill of sale shall be executed before the
consul of the Republic of the Philippines at the port
where it terminates its voyage and said instrument
shall produce no effect with respect to third persons if
it is not inscribed in the registry of the consulate. The
consul shall immediately forward a true copy of the
instrument of purchase and sale of the vessel to the
registry of vessels of the port where said vessel is
inscribed and registered.
In every case the alienation of the vessel must be
made to appear with a statement of whether the
vendor receives its price in whole or in part, or
whether he preserves in whole or in part any claim
on said vessel. In case the sale is made to a Filipino,
this fact shall be stated in the certificate of
navigation.
When a vessel, being on a voyage, shall be rendered
useless for navigation, the captain shall apply to the
competent judge on court of the port of arrival,
should it be in the Philippines; and should it be in a
foreign country, to the consul of the Republic of the
Philippines, should there be one, or, where there is
none, to the judge or court or to the local authority;
and the consul, or the judge or court, shall order an
examination of the vessel to be made.
If the consignee or the insurer should reside at said
10
port, or should have representatives there, they must
be cited in order that they may take part in the
proceedings on behalf of whoever may be
concerned.
ARTICLE 579. After the damage to the vessel and
the impossibility of her being repaired, in order to
continue the voyage had been shown, its sale at
public auction shall be ordered, subject to the
following rules:
1.The hull of the vessel, its rigging, engines, stores,
and other articles shall be appraised, after making an
inventory, said proceedings to be brought to the
notice of the persons who may wish to take part in
the auction.
2.The order or decree ordering the auction to be held
shall be posted in the usual places, an
announcement thereof to be inserted in the Official
Gazette and in two of the newspapers of the largest
circulation of the port where the auction is to be held,
should there be any. The period which may be fixed
for the auction shall not be less than twenty days.
3. These announcements shall be repeated every ten
days, and their publication shall be made to appear
in the records.
4. The auction shall be held on the day fixed, with the
formalities prescribed in the common law for judicial
sales.
5. If the sale should take place while the vessel is in
a foreign country, the special provisions governing
such cases shall be observed.
Co-owners rights
If the vessel is sold to third persons, the co-owner is
given the right of redemption in accordance with
Article 575 which provides that co-owners of vessels
shall have the right to repurchase and redemption in
sales made to strangers, but they may exercise the
same only within the nine days following the
inscription of the sale in the registry, and by
depositing the price at the same time.
Nationality of Vessels
Vessels that are duly registered in the Philippines are
considered Philippine Flag vessels. These ships are
deemed to possess Philippine nationality within the
contemplation of the UNCLOS.
Article91
Nationality of ships
1. Every State shall fix the conditions for the grant of
its nationality to ships, for the registration of ships in
its territory, and for the right to fly its flag. Ships have
the nationality of the State whose flag they are
entitled to fly. There must exist a genuine link
between the State and the ship.
2. Every State shall issue to ships to which it has
granted the right to fly its flag documents to that
effect.
Article92
Status of ships
1. Ships shall sail under the flag of one State only
and, save in exceptional cases expressly provided
for in international treaties or in this Convention, shall
be subject to its exclusive jurisdiction on the high
seas. A ship may not change its flag during a voyage
or while in a port of call, save in the case of a real
transfer of ownership or change of registry.
2. A ship which sails under the flags of two or more
States, using them according to convenience, may
not claim any of the nationalities in question with
respect to any other State, and may be assimilated to
a ship without nationality.
Article93
Ships flying the flag of the United Nations, its
specialized agencies
and the International Atomic Energy Agency
The preceding articles do not prejudice the question
of ships employed on the official service of the United
Nations, its specialized agencies or the International
Atomic Energy Agency, flying the flag of the
organization.
Article94
Duties of the flag State
1. Every State shall effectively exercise its jurisdiction
and control in administrative, technical and social
matters over ships flying its flag.
2. In particular every State shall:
(a) maintain a register of ships containing the names
and particulars of ships flying its flag, except those
which are excluded from generally accepted
international regulations on account of their small
size; and
(b) assume jurisdiction under its internal law over
each ship flying its flag and its master, officers and
crew in respect of administrative, technical and social
matters concerning the ship.
3. Every State shall take such measures for ships
flying its flag as are necessary to ensure safety at
sea with regard, inter  alia, to:
(a) the construction, equipment and seaworthiness of
ships;
(b) the manning of ships, labour conditions and the
training of crews, taking into account the applicable
international instruments;
(c) the use of signals, the maintenance of
communications and the prevention of collisions.
4. Such measures shall include those necessary to
ensure:
(a) that each ship, before registration and thereafter
at appropriate intervals, is surveyed by a qualified
surveyor of ships, and has on board such charts,
nautical publications and navigational equipment and
instruments as are appropriate for the safe
navigation of the ship;
(b) that each ship is in the charge of a master and
officers who possess appropriate qualifications, in
particular in seamanship, navigation,
communications and marine engineering, and that
the crew is appropriate in qualification and numbers
for the type, size, machinery and equipment of the
ship;
(c) that the master, officers and, to the extent
appropriate, the crew are fully conversant with and
required to observe the applicable international
11
regulations concerning the safety of life at sea, the
prevention of collisions, the prevention, reduction and
control of marine pollution, and the maintenance of
communications by radio.
5. In taking the measures called for in paragraphs 3
and 4 each State is required to conform to generally
accepted international regulations, procedures and
practices and to take any steps which may be
necessary to secure their observance.
6. A State which has clear grounds to believe that
proper jurisdiction and control with respect to a ship
have not been exercised may report the facts to the
flag State. Upon receiving such a report, the flag
State shall investigate the matter and, if appropriate,
take any action necessary to remedy the situation.
7. Each State shall cause an inquiry to be held by or
before a suitably qualified person or persons into
every marine casualty or incident of navigation on the
high seas involving a ship flying its flag and causing
loss of life or serious injury to nationals of another
State or serious damage to ships or installations of
another State or to the marine environment. The flag
State and the other State shall cooperate in the
conduct of any inquiry held by that other State into
any such marine casualty or incident of navigation.
Rights under the Tariff and Customs Code
Sec. 810. Privileges Conferred by Certificate of
Philippine Registry. — A certificate of Philippine
registry confers upon the vessel the right to engage,
consistently with law, in the Philippine coastwise
trade and entitles it to the protection of the authorities
and the flag of the Philippines in all ports and on the
high seas, and at the same time secures to it the
same privileges and subjects it to the same
disabilities as, under the laws of the Philippines,
pertain to foreign-built vessels transferred abroad to
citizens of the Philippines. 
Sec. 8. Registration and Deletion of Vessels. — All
vessels owned by Philippine shipping enterprises
and availing of the incentives under this Act shall be
registered under the Philippine flag. Said vessels can
only be deleted from the Philippine registry after the
MARINA has determined that: 
(a) No other Philippine shipping enterprise is
interested in acquiring the vessel; or 
(b) The vessel has to be scrapped.
Flag of convenience
Article 92 of the UNCLOS provides that there must
be a genuine link between the State and the ship in
order to confer nationality over the ship. There are
instances when countries may allow registration of
vessels belonging to nationals of other countries.
There is no genuine link between the State and the
ship and the registration is just a matter of
convenience, hence, the term Flags of Convenience.
The absence of genuine link is reflected in either the
absence or minimal regulation of the registered
vessels by the country where the vessels are
registered. The Philippines is not a “Flag of 1. Name of Ship;
convenience” country. 2. Former Names and Registry;
3. Type of Ship;
Registration of Vessel 4. Call sign;
5. Official number;
Vessels are now registered through the MARINA. It 6. IMO Number;
Is a longstanding rule that the person who is 7. Material Hull;
registered owner of the vessel is presumed to be the 8. Principal dimension and structure
owner of the vessel. Moreover, it is likewise a settled (Mast/Decks/Stem/Stern);
rule that the sale or transfer of the vessel is not 9. Tonnage (Gross/Net/Deadweight);
binding on third persons unless the same is 10. Class;
registered. 11. Speed;
12. Main Engine;
Register of Philippine Vessels 13. Builders/Place of built;
14. Year Built;
Under Memorandum Circular No. 2013-02, 15. Name of Owner;
registration, documentation and deletion of ships 16. Name of former owner:
operating in the Philippines regardless of size and 17. Mode of acquisition (imported, bareboat
utilization, whether with power or without power, chartered, locally constructed, locally purchased)
including those ships below three tonnage (GT),
motorized or motorized shall be registered under Ship’s manifest
MARINA except:
Vessels are required to carry manifests in coastwise
1. Warships and naval ships; trade and shall be required for cargo and passengers
2. Ships of the Philippine Coast Guard; transported from one place or port in the Philippines
3. All ships of foreign registry temporarily used in the to another only when one or both of such places is a
Philippine waters; and port of entry.
4. Inflatable Boats used for rescue made of either a
single or more rubber tubing. A manifest is a declaration of the entire cargo. The
object of a manifest is to furnish customs officers with
Other terms used under the Circular a list to check against, to inform the revenue officers
what goods are being brought into a port of the
1. Domestic Ownership refers that at least 60% of country on a vessel.
the capital stock or capital of which is wholly owned
by citizens of the Philippines. Passenger Manifest
2. Homeport refers to the port where the ship is
registered. 1. The total number of passengers on board shall not
3. Port of Registry refers to the port in the Philippines exceed the total number of passengers allowed for
where the ship’s record of registry is being kept and each ship.
maintained.
4. Ship Registration refers to the documentation and 2. All passengers on board the ship shall be duly
authorization of a ship to sail under the Philippine manifested as reflected in the passenger manifest.
flag.
5. Domestic trade refers to carriage of passengers 3. Manifest or passenger list should be prepared and
and or cargoes between two or more ports and made available before the ship leaves port.
places in the Philippines by the use of vessel either
as common or contract of carrier or for exclusive 4. Children three years and above shall be counted
company/own use including operations within bays as adult passengers and shall be assigned seats.
and rivers and other inland waterways.
6. Overseas trade refers to the transport of goods 5. Children below three years old shall be carried by
and or passenger and/ or vessel operations outside an adult at all times.
of Philippine territorial waters, including those calls at
the Philippine ports from foreign ports or vice versa. Logbook

Trampers at the Central Office or at the nearest
MARINA Regional Office where the company’s
principal or branch office is located
Liners at the Central Office or at the nearest MARINA
Regional Office where the company’s principal or
branch office is located or any of the ports of call of
the ship, provided the company has a branch in that
port of call.
Contents
It is the official record of a ship’s voyage which its
captain is obligated by law to keep wherein he
records the decision he has adopted, a summary of
the performance of the vessel, and other daily
events. A logbook is a respectable record that can be
relied upon when the entries therein are presented in
evidence, legally binding and one of the exceptions
to the hearsay rule.
Safety regulation

12
MARINA thru its Memorandums directed all domestic
shipowners and operators to strictly comply with
existing safety-related policies, guidelines, rules and
regulations such as:

1. Overcrowding and overloading

2. 10 minutes Film on safety
3. Issuance of endorsement certificates in
accordance with the STW 1978 Convention
4. Implementing guidelines for vessel regulation
5. Preventive Safety Measures and other concerns
6. Wearing of lifejacket during boarding with open
deck accommodation
7. Voice tape on the safety features of a vessel
8. International Safety Management Code in
Domestic Shipping
9. Code of Safe Practice for Cargo Stowage and
securing
10. Regulation of Ship Safety Inspection System
11. Regulation of Dangerous and or hazardous
Cargoes in packaged form
12. Installation of safety equipment
13. Approved lifejackets and life buoys for ship
engaged in domestic shipping
Cabotage
The right of cabotage is the right of foreign vessels to
engage in coastwise shipping, that is, to provide
service from one place within the Philippines to
another place in the Philippines. Previously, foreign
vessels do not have the right of cabotage. The right
of cabotage is now provided for under present laws.
Under Foreign Ships Co-Loading Act, foreign ships
carrying imported cargoes are allowed to dock in
multiple ports in the country subject to compliance
with the clearance requirements. MSMEs who are
importing or exporting goods will have access to
cheaper alternative in transporting goods through co-
loading in foreign ships with the end of view of
lowering the prices of goods that are available to the
public.
Repair of Vessels
Ship repairers are liable to the shipowner for the
damage that may have caused while such vessel is
being repaired at the former’s shipyard. However,
both are equally liable if they are both equally
negligent. The parties may validly agree to limit the
ship repairer’ liability and would depend upon the
circumstances.
Chapter 12 Ship Mortgage and Maritime Liens
Meaning of Preferred Mortgage
Section 10 of PD 1521 provides that “a preferred
mortgage shall constitute a lien upon the mortgaged
vessel in the amount of the outstanding mortgage
indebtedness secured by such vessel. The
preference is not absolute because there are other
claims that prevail over ship mortgage. These are the
liens that are enumerated under Section 17 of PD
1521.
Requirements for Preferred Mortgage
1. The mortgage is recorded;
2. Affidavit of Good Faith
3. The mortgage does not stipulate that the
mortgagee waives the preferred status thereof.
4. The mortgage should cover the whole of the
vessel
5. The vessel must be of domestic ownership.
Maritime Lien
It is a privilege claim on a vessel for some service
rendered to it to facilitate its use in navigation. It is a
special property right in a ship given to a creditor by
law as security for a debt or claim subsisting from the
moment the debt arises with right to have the ship
sold and dept paid out of the proceeds.
In the Philippines, a maritime lien is akin to a
mortgage lien in that in spite of the transfer of
ownership, the lien is not extinguished. The maritime
lien is inseperable from the vessel and until
discharged, it follows the vessel.

Preferred claims

1. Expenses and fees allowed and costs taxed by the

court and due to the Government;
2. Crew’s wages;
3. General average;
4. Salvage, including contract salvage;
5. Maritime lien arising prior in time to the recording
of the preferred mortgage;

13
6. Damages arising out of tort; and
7. Preferred mortgage registered prior in time.
Executory contract doctrine
A lien does not attach for breach of an executory
contract even though the contract is the type which is
normally gives rise to a lien. Liability arises in
admiralty for breach of contract but if the parties have
performed his obligation, his remedy against the
other is only for breach in an action in personam.
Waiver of lien
Furnishers of repairs, supplies, towage, use of dry
dock or marine railways, or other necessaries, or the
mortgagee, are not prevented from waiving their right
to a lien or in the case of a preferred mortgage lien,
to the preferred status of such lien, at any time by
agreement or otherwise.
Prescription and Laches
Under Article 1144 of the Civil Code, an action upon
an obligation created by law must be brought within
ten years from the time the right of action accrues.
Hence, enforcement of a maritime lien imposed by
special law prescribes in ten years.
Laches may also lie if there was unreasonable delay
on the part of claimant in asserting its right. The
protection against third person accorded to the
maritime lienor is narrowly circumscribed by the
requirement that he must act promptly to assert his
rights.
Maritime liens for necessaries
The maritime liens that are superior to the preferred
mortgage includes maritime lien for necessaries.
Section 21 of the Ship Mortgage Degree provides for
the following requirements for a maritime lien for
necessaries which is enforceable by suit in rem.
1. The necessaries must have been furnished to and
for the benefit of the vessel;
2. The necessaries must have been necessary for
the continuation of the voyage of the vessel;
3. The credit must have been extended to the vessel;
4. There must be necessity for the extension of the
credit;
5. The necessaries must be ordered by persons
authorized to contract on behalf of the vessel.
a. The managing owner,
b. Ships’ husband,
c. Master,
d. Any person to whom the management of the
vessel at the port of supply is entrusted.
Examples of maritime liens for necessaries are
claims with respect to expenses for the payment of
bunker oil/fuel, unused stores and oil, bonded stores,
provisions, and repair and docking of the vessel are
preferred claims because they are necessaries.
14
Maritime tort
Maritime torts are defined as civil wrongs committed
on navigable waters. As a general principle, any
conduct which is tortious under general law and
which is connected with the ship or its uses creates a
maritime lien. It includes claims and personal injury
claims. Hence personal injuries resulting from
defective appliances, improper construction or
negligence of the ship’s crew give rise to maritime
lien.
Salvage Lien
Salvage lien may either be one arising ex contractu
or that imposed by Act No. 2616. Salvage is given
preference because of the benefit conferred in
preserving the value of the vessel and the cargo.
Subrogation
Third person who satisfies the obligation to an
original maritime lienor may claim from the debtor
because the third person is subrogated to the rights
of the maritime lienor over the vessel.
When Proceeds not sufficient
If the proceeds of the sale should not be sufficient to
pay all creditors included in one number or grade, the
residue shall be divided among them pro rata. All
credits not paid, whether fully or partially shall subsist
as ordinary credits enforceable by personal action
against the debtor.
Test to determine the presence of lien
1. Law of the country where the supplies were
furnished.
2.Multiple contact test
a. Place of the wrongful act;
b. Law of the flag;
c. Allegiance or domicile of the injured;
d. Allegiance of the defendant shipowner;
e. Place of contract;
f. Inaccessibility of foreign forum; and
g. Law of the forum
Who may constitute preferred ship mortgage
Any citizen of the Philippines, or any association or
corporation organized under the laws of the
Philippines, at least sixty 60% of the capital of which
is owned by citizen of the Philippines may 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.
Purpose
The loan secured by the ship mortgage must be for
the purpose of financing the construction, acquisition,
purchase of vessels or initial operation of vessels.
The purpose is important in determining the
presence of preference.
MARINA rules
Under MARINA memorandum circular, any
annotation, cancellation of mortgages and transfer of
rights and other encumbrances of vessels must be
duly registered with the MARINA with documents
which evidence ownership or documents directly or
indirectly affecting the title of the vessel.
Mortgage with non-maritime property
In the case of a mortgage which includes property
other than a vessel, the mortgage shall not be held
preferred mortgage unless the mortgage provides for
the separate discharge of such property by the
payment of a specified portion of the mortgage
indebtedness. The property whose separate
discharge must be provided for is the non-maritime
property.
Fleet Mortgage
There may be mortgage on two or more vessels. The
mortgage may provide for separate discharge of
each vessel by the payment of a portion of such
payment shall be endorsed upon the documents of
the vessel.
In case such mortgage does not provide for the
separate discharge of a vessel, the mortgage may
nonetheless be a preferred mortgage. However,
where there is no such separate discharge and the
vessel is to be sold upon the order of a court of
competent jurisdiction in a suit in rem in admiralty,
the court shall determine the portion of the mortgage
indebtedness increased by 20% (1) which, in the
opinion of the court, the approximate value of all the
vessels covered by the mortgage, and (2) upon
payment of which the vessel shall be discharged
from the mortgage.
Arrest and foreclosure
Upon default of the obligor, the preferred ship
mortgage may be foreclosed in a suit in admiralty.
Upon filing of petition for foreclosure, the court may
order the arrest of the vessel upon a ex parte
application duly supported by an affidavit of a person
who knows the facts and upon filing of a bond.
Foreclosure is only an alternative remedy. The
mortgage may likewise avail of the alternative
remedy of specific performance in a suit in personam
in admiralty.
Chapter 14 Charter Parties
Charter party was essentially defined as a contract
whereby an entire ship, or some principal part of the
ship, is let by the owner thereof to a merchant or
other person for specified time or use for the
conveyance of goods, in consideration of the
payment of freight.
Kinds of Charter Parties
15
1. Bareboat Charter. It is bareboat or demise charter
when the shipper 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 charterer’s servants. The
charterer becomes the owner “pro hac vice” of the
vessel since he mans the vessel with his own set of
master and crew, effectively becoming the owner for
the voyage or service stipulated subject however to
any liability for damages arising from negligence.
2. Contract of Affreightment. In a time charter, the
vessel is leased to the charterer for a fixed period of
time, whereas in voyage charter, the vessel charters,
which are said to be contracts of affreightment, the
charterer hires the vessel only, either for a
determinate period of time or for single or
consecutive voyage, with the shipowner providing for
a single or consecutive voyage, with the shipowner
providing for the provisions of the ships, the wages of
the master and crew, and the expenses for the
maintenance of the vessel.
Effect of charter on character of carrier
Generally, the character of the common carrier such
is not affected by the charter party if the same is a
contract of affreighment.
Persons who may make charter
The owner or owners of the vessels, either in whole
or in majority part, who have legal control and
possession of the vessel, may validly enter into
charter parties with a charterer. A third person called
a broker may, however, intervene in the execution of
the charter between the principals.
Charterer
The charterer, by himself, may subcharter the entire
vessel to a third person but only in the event that
there is no prohibition in the original charter
regarding any subcharter. In such a case, any cargo
delivered by the second charterer for loading may not
generally be refused by the captain. The subcharter,
where entered into, is an independent contract by
itself involving only the charterer and the
subcharterer and therefore does not give rise to any
contractual relation between the general owner and
the subcharterer.
Part owners
Part owners of the vessel are not precluded from
chartering the same for their own commercial
purposes. In fact, such part owners enjoy preference
in the charter of the vessel over other persons who
offer equal conditions and freight.
Ship agent
In the code of commerce, the ship agent is not
allowed to make contracts for a new charter unless
he is properly or duly authorized by the owner, or by
virtue of an authority given by a resolution of the
majority of the co-owners. He may , however , make
such charter if the same has been extended to him in
his certificate of appointment.
Captain or Master.
It is one of the inherent powers of the captain or
master of the vessel to enter into a valid and binding
charter parties, but only in the event of absence of
the ship agent or consignee, and only if the said
captain or master acts in accordance with the
instructions of the agent or owner and protects the
latter’s interest.
Requisites of a valid charter party.
As the charter party is a contract, it is therefore to be
governed by the general principles governing
ordinary contracts. Hence, the parties therein are
free to stipulate upon such terms and conditions that
would suit their purposes, subject to the caveat that
these should not be contrary to law or public policy.
1. Consent of the contracting parties;
2. An existing vessel which should replace at the
disposition of the shipper;
3. Freight;
4. Compliance with the formal requirements
prescribed under Article 652 of the Code of
Commerce which include the requirement that the
charter party must be in writing, drawn in duplicate
and signed by the parties.
Primage that is referred to payment for the use of the
equipment belonging to the captain.
Accrual of Freight
It shall accrue according to the conditions stipulated
in the contract. Otherwise, if there should be no
stipulation to that effect, or there is but the same is
ambiguous, then the rules shall be that:
1. the freight shall begin to run from the day of
loading on the vessel;
2. in charters with fixed period, the freight shall begin
upon that very day; and
3. if the freight is charged according to weight, the
payment thereof shall be made according to the
gross weight, including the weight of the containers.
Cases when freightage is not due.
1. Jettisoned goods that are considered general
average loss;
2. Merchandise that are lost because of shipwreck or
stranding, and
3. Goods that are lost due to seizure by pirates or
enemies.
However, if the freight should have been paid in
advance, then the same should be returned unless
there is an agreement to the contrary.
When payment is not excused.
16
The merchandise sold by the captain to pay for the
necessary repairs to the hull, machinery or
equipment, or for unavoidable and urgent needs,
shall pay freightage. The price of this merchandise
shall be fixed according to the result of the voyage as
outlined in Article 659 of the Code of Commerce.
Payment of freightage is not also excused if the
merchandise suffer deterioration or diminutions on
account of inherent defects or bad quality and
condition of the packaging, or because of fortuitous
event. The freightage shall be paid in full and as
stipulated in the charter party.
Increase of weight
Natural increase in weight or size of the merchandise
loaded on the vessel shall accrue to the benefit of the
owner, and shall pay the proper freightage fixed in
the contract for the same.
Port of unloading
The port of destination where the cargoes will be
unloaded must be stipulated in the Charter Party.
However, the parties may also provide that the
charterer is given the option of discharge at one or
more ports within a geographic range. This option
may be necessary in some cases based on the
sound commercial reason that the charterer may not
know at the time that charter is fixed the best market
for his goods
When an option is given to the charterer, the
shipowner may protect himself by including a “safe-
ports clause” in the Charter Party whereby he
reserves the right to decline to risk his vessel in an
unsafe zone.
Demurrage
The Code of Commerce provides that the time for
loading and unloading shall be provided for in the
Charter Party. The period is what is known as the
“lay days.”
Demurrage means a sum of money due by express
contract for the detention of the vessel in loading and
unloading, beyond the time allowed for that purpose
in the charter party. In other words, if the vessel is
detained beyond the number of days agreed upon in
the charter contract for the loading and unloading of
cargo, or for eventual sail, the charterer shall answer
for the demurrage incurred thereby, the sum of which
is usually fixed by the parties in the charter party. In
the absence of stipulation, the usages of the port
where these acts take place shall be observed.
Computation of lay days
In connection with demurrage, it has been observed
that unless the contrary intention appears in the
charter party, the stipulated lay days do not begin to
run against the consignee until the vessel has arrived
at berth or other usual and customary place for
loading or unloading, and is in actual readiness to
discharge its cargo in accordance with its legal
obligation.
If no lay day is provided for in the Charter Party, it is
understood that the charterer will unload and
discharge the cargoes within a reasonable time or
with reasonable diligence.
Dead freight
On the other hand, where the charterer failed to
occupy the leased portion of the vessel, he may
thereby be made liable by the shipwowner for the
deadfreight that occurred.
Rights and obligations of the charter parties
The parties in a Charter party are bound to comply
with their respective obligations imposed by law. As
in any ordinary contract, the parties in the charter
agreement have corresponding rights and
obligations. Apart from those accruing from the
stipulations of the parties, the statutory rights and
obligations of the charter parties are to be found in
the Code of Commerce.
Shipowner or Captain
1. The evident failure or refusal on the part of the
shipowner or of his agents to receive cargo which
had been contracted to be transported under the
charter party constitutes a sure breach of the charter
party, as to warrant a suit for damages by the
charterer for such breach.
2. The shipowner is bound to observe, relative to the
charter party, the capacity of the vessel or that which
is indicated expressly in the registry, a margin
greater than two percent between that represented
and her actual capacity which is not allowable.
3. Generally, any loss incurred by a shipper whose
cargo is refused on account of the receipt by the
shipowner of a greater amount of cargo belonging to
other persons shall be for the account of the
shipowner in the form of indemnity. If there is only
one shipper and there was apparent fraud or error in
the vessel’s capacity, the charterer may opt to have
the freight reduced if he does not choose to rescind
the charter, with a further right to be indemnified.
4. If there should be several charter parties, and due
to lack of space, not all could be accommodated
although not one would want to rescind the charter,
preference shall be given to the person who is first in
loading his cargo, and the others shall have the
preference in the order of the dates of their charter.
In the absence of priority, the charterers may choose
to load in proportion to the amounts of weight or
space that they may have contracted, with a right to
indemnified for the loss.
5. The shipowner, under certain conditions, may
effect a substitution in respect of the vessel which
had been initially chartered with that of another, so
17
long as the substitute vessel had been duly
inspected and is seaworthy.
6. Furthermore, after 3/5 of the vessels is loaded, the
shipowner may not substitute the chartered vessel
with another one unless he procures the consent of
the charterers or shippers. Otherwise, he runs the
risk of answering for all damages suffered during the
voyage by those who did not give their consent.
7. The captain may not, if the vessel has been
chartered in whole, accept cargo from any other
person unless the consent of the charterer is
obtained. Otherwise, the captain may be compelled
by the charterer to unload the said cargo and pay to
the chartere any damage that he may suffer on
account thereof.
8. The shipowner may also be generally held liable
for damages incurred by the charterer due to the
voluntary delay of the captain in putting to sea,
provided he was requested, by way of notarial or
judicial notice, to put to sea at the proper time.
Charterer
1. As previously noted, the charterer shall have the
right to subcharter the vessel to a third person only if
he is so authorized by the shipowner. Otherwise he
shall be liable to the shipowner for any damage to
the latter by virtue of subcharter.
2. A charterer who loads goods from that contracted
upon, without the knowledge of the shipowner or
captain, and which results to change due to
confiscation, embargo, detention, and other causes,
to the said shipowner, shall be liable to indemnify the
parties injured thereby.
3. Should illicit cargo be shipped by the charterer in
the chartered vessel with the knowledge of the
shipowner or of the captain, said charterer shall
jointly liable with the shipowner for all the damages
caused to the other shippers.
4. The charterer and shippers may not, for the
payment of freight and other expenses incurred,
abandon the goods damaged due to inherent defects
or by reason of fortuitous event. Abandonment may
be proper however if the cargo, if consisting of liquid,
may have leaked out and none remains except ¼ of
their contents.
Liability of charterer to shipowner in case of bareboat
charter.
1. Contract bound to return the thing leased and it
was liable for the deterioration or loss of the same.
2. Liable in case of lost due to negligence of the sub-
charterer to whom charterer chose to sub-charter or
sublet the vessel.
Replacement of vessel
The shipowner may replace the chartered vessel in
the following instances.
1. If, after receiving a part of the freight, should not
find sufficient to make up at 3/5 of the amount which
the vessel may hold, at the price he may have fixed,
he may substitute for the transportation another
vessel inspected and declared suitable for the same
voyage. The expenses of transfer and the increase in
the price of the charter, should there be any, being
for the ship owner’s account.
2. Substitution with the consent of the charters or
shippers.
Note that after 3/5 of the vessel has been loaded, the
person from whom she is chartered may not, without
the consent of the charterers or shippers, substitute
the vessel designated in the charter party by another
one. The ship owner is under the penalty of making
himself thereby liable for all the losses and damages
occurring during the voyage to the cargo of those
who did not consent to the change.
Effect of Bill of Lading
If a bill of lading was issued by the shipowner to the
charterer, the charter party still governs their rights
and the bill may be used as proof of receipt of the
goods. As between the parties, the bill of lading is
still proof of receipt of the goods but the terms and
conditions of contract are in the charter party.
However, while the bill of lading does not operate as
a new contract or modify the charterer party as
between the shipowner and charterer, the bill of
lading does not constitute a contract between the
vessel and the consignee, and neither he nor his
endorsee is bound by the terms of the charter party
of which he has no notice or knowledge.
If the bill of lading together with the charter party that
is issued by the shipowner is negotiable document of
title, the bill of lading is binding in favor of the
subsequent holder for value. As this third person,
there is no other contract but the bill of lading.
I this connection, the Code of Commerce provides
that of the cargo should be received without the
charter party having been signed, the contract shall
be understood as executed in accordance with what
appears in the bill of lading, the sole evidence of title
with regard to the cargo for determining the rights
and obligations of the ship agent, of the captain, and
of the charterer.
Freight
The charterer must pay the shipowner the amount
agreed upon. Article 667 provides that the goods
loaded shall be liable in the first place for the freight
and expenses thereof during the 20 days ( now 30
days ) to be counted from the date of delivery or
deposit. Any natural increase in weight or size of the
merchandise loaded on the vessel shall accrue to the
benefit of the owner, and shall pay the proper
freightage fixed in the contract for the same.
Lien on the cargoes
18
Article 665 provides that the cargo shall be especially
liable for the payment of
1. freightage
2. expenses and duties arising therefrom, which must
be reimbursed by the shipper and
3. for the part of the general average which may
correspond it.
However, it shall be not legal for the captain to delay
unloading on account of suspicion that this obligation
may not be complied. Should there be reasons for
distrust, the judge or court, at the instance of the
captain, may order the deposit of the merchandise
until he has been paid in full.
Rights to sell the cargo is subject to the right of third
persons who received the goods without malice and
for a valuable consideration.
The court may likewise order the deposit of the
goods at the instance of the captain in the case
mentioned in article 665 of the Code of Commerce
when there is a reason for distrust and the two cases
mentioned in Article 668 particularly if (1) the
consignee refuses to receive the goods (2) the
consignee cannot be found.
Chapter 15 Loans on Bottomry and Respondentia
Bottomry is a contract whereby the owner of a ship
borrows for the use, equipment or repair of the
vessels, for a definite term, and pledges the ship as
security, with the stipulation that if the ship is lost
during the voyage or during the limited time on
account of the perils enumerated, the lender shall
lose his money.
Where the goods, or some part thereof, are
hypothecated as security for a loan, the repayment of
which is dependent upon maritime risks, what
ensues is a loan on respondentia.
There must be a maritime risk upon which the loan
os predicated such if the vessel or cargo is lost by
virtue of that risk, the lender loses the capital or
money lent. Thus, there is neither bottomry nor
respondentia if the money borrowed is subject to
repayment in any event.
The peculiarity of the loans on bottomry and
respondentia arose from the hazards of the trade
whereby the lender had to bear with, and assume,
the numerous marine perils that lay in the path of
many ship’s voyage; and thus, upon the termination
of a safe journey, he is entitled to receive thereby a
greater return on his principal than would ordinarily
be received by a lender in an ordinary or simple loan.
However, the lender in a loan on respondentia does
not lose his capital should the ship perish due to
marine peril, so long as the goods subject of the loan
survive or are saved; but where the ship and the
cargo on board should disappear due to perils of the
sea, the lender on respondentia shall suffer loss of
his capital.
Distinguised from simple loan
1. In bottomry or respondentia, the rate of interest is
not subject to the usury law on account of
extraordinary risks involved whereas in simple loan,
the rate of interest must not exceed the ceiling fixed
by usury law.
2. In bottomry or respondentia, there must
necessarily be a marine risk the existence of which
must be duly established whereas in a simple loan,
there need not be such risks involved.
3. The loan on bottomry or respondentia must be
executed in accordance with the form and manner
required in the Code of Commerce whereas in a
simple loan, the formal requisites regarding contracts
in general would apply.
4. The loan on bottomry or respondentia must be
recorded in the registry of vessels in order to bind
third persons whereas no such registration is
required in the case of a simple loan.
5. In the loan on bottomry or respondentia,
preference is extended to the last lender if there be
several lenders, whereas, in a simple loan, the first
lender, as a general rule, enjoys preference over
subsequent ones.
When simple loan applies
If the should prove that he loaned an amount which
is larger than the value of the object liable for the
bottomry loan due to fraudulent means employed by
the borrower, the loan shall be valid only for the
amount at which the object is appraised by experts,
and the surplus principal shall be repaid as if it were
a simple loan, with legal interest thereon.
Also, if the full amount of the loan which is contracted
in order to load the vessel 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 as
simple loan which should be returned prior to the
commencement of the voyage. This is necessary in
order to forestall the possibility of other contracts
which differ in nature from being included under the
name of the bottomry loan. Finally, if the effect on
which the money is taken not be subjected to any
risk, the contract will be regarded as a simple loan.
Authority to constitute loan on bottomry
The shipowner may secure a loan on bottomry upon
his ship, although in the case where he is only a part
owner, any bottomry that he may contract shall be
limited only to the extent of his interest in the vessel.
The ship captain, who is part owner, may in like
manner obtain a loan on bottomry only to the extent
of his interest.
No loan on bottomry may however be made, in any
case, on the salaries of the crew, nor or the profits
which may be expected.
Authority to constitute loan on respondentia
19
The cargo owner, on the other hand, shall have the
right to enter into a loan on respondentia involving
his cargo.
The captain, being a mere agent of the ship owner
and not of the cargo owner, may not contract loan on
respondentia, and if he does so, such loan would be
void and the principal interst, and costs of the
contract shall be charged to his private account, and
he may even be discharged altogether as ship
captain by the shipowner.
Forms of the loans
1. By means of a public instrument.
2. By means of a policy signed by the contracting
parties and broker taking part therein.
3. By means of a private instrument.
Furthermore, the contract must contain a statement
of the kind, name and registry of the vessels, the
name surname, and domicile of the captain, the
names, surnames, and domiciles of the perdon
giving and the person receiving the loan, the amount
of the laon and the premium stipulated, the time for
repayment, the objects pledged to secure repayment,
and the voyage during which the risk is to run.
Consequences of loss of effects of the loan
If the effects of the loans be lost due to an accident
of the sea during the time, and on the occasion of the
voyage which has been designated in the contract
and it is proven that the cargo was on board, then the
lender loses the right to institute the action which
would pertain to him as such. The lender, however,
retains such right of action if the loss was caused by
the inherent defect of the thing, or through the fault or
malice of the borrower, or through barratry on the
part of the captain, or if it was caused by damages
suffered by the vessels as consequence of being
engaged in a contraband, or if it arose from having
loaded the goods on a vessel different from that
designated in the contract, unless in this latter, the
change was due to force majeure.
The lenders on bottomry or respondentia shall suffer
in proportion to their respective interest, the general
average which may take place in the things upon
which the loans were made. In particular averages, if
there is no agreement between the parties, the
lender on bottomry or respondentia is obligated to
contribute in proportion to his respective interest,
should it not belong to the kind of risks excepted in
Article 731.
If what transpire is a shipwreck, the amount for the
payment of the loan shall be reduced to the proceeds
of the effects which have been saved but only after
deducting the costs of the salvage. If the loan should
be on the vessel or any of her parts, the freight
earned during the voyage for which the loan was
contracted shall also be liable for its payment, as far
as it may reach.
If the same vessel or cargo should be the object of
the loan on bottomry or respondentia and marine
insurance, the value of what may be saved in case of
shipwreck shall be divided between the lender and
the insurer, in proportion to the legitimate interest of
each one, taking into consideration, for this purpose
only, the principal with respect to the loan, and
without prejudice to the right of preference of other
creditors in accordance with Article 580.
Preference is given to the loans for the last voyage
on the theory that were it not for the last lende, the
prior lenders would not have benefited from the
preservation of the security. The loan for the last
voyage was used to preserve the vessel or the
cargoes.
Chapter 16 Averages
Averages in general
1. All extraordinary or accidental expenses which
may be incurred during the voyage in order to
preserve the vessel, the cargo or both.
2. Any damages or deterioration which the vessel
may suffer from the time it puts to sea from the port
of departure until it casts anchor in the port of
destination, and those suffered by the merchandise
from the time they are loaded in the port of shipment
until they are unloaded in the port of their
consignment.
Kinds
1. General or gross average
2. Simple or particular average
Simple Average
Simple average shall 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. If the damage caused is not a general
average, the same can be considered a particular
average.
By whom borne
Since simple or particular averages do not inure to
the common benefit, the owner of the goods that
suffered the damage bears the loss. Article 810 of
the Code of Commerce provides that the owner of
the goods which gave rise to the expense or suffered
the damages hall bear the simple or particular
averages. The rules on simple or particular average
are consistent with the maxim res perit domino.
If the vessel or goods hyphotecated by a loan on
bottomry or respondentia, the lender shall also bear
the loss in proportion to his interest.
Examples of Simple or particular averages
1. The losses suffered by the cargo from the time of
its embarkation until it is unloaded, either on account
20
of inherent defect of the goods or by reason of an
accident of the sea or force majeure, and the
expenses incurred to avoid and repair the same.
2. The losses and expenses suffered by the vessel in
its hull, rigging, arms, and equipment, for the same
causes and reasons, from the time it puts to sea from
the port of departure until it anchors and lands in the
port of destination.
3. The losses suffered by the merchandise loaded on
deck, except in coastwise navigation, if the marine
ordinance allow it.
4.The wages and victuals of the crew when the
vessel is detained or embargoed by legitimate order
or force majeure, if the charter has been contracted
for a fixed sum for voyage.
5. The necessary expenses on arrivals at a port, in
order to make repairs or secure provisions.
6. The lowest value of the goods sold by the captain
in arrivals under stress for the payment of provisions
and in order to save the crew, or to meet any other
need of the vessel, against which the proper amount
shall be charged.
7. The victuals and wages of the crew while the
vessel is in quarantine.
8. The loss inflicted upon the vessel or cargo by
reason of an impact or collision with another, if it is
accidental or unavoidable. If the accident should
occur through the fault or negligence of the captain,
the latter shall be liable for all the losses caused.
9. Any loss suffered by the cargo through the fault,
negligence, or barratry of the captain or of the crew,
without prejudice to the right of the owner to recover
the corresponding indemnity from the captain, the
vessel and the freightage.
General average
General average shall 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 real or known risk.
Requisites of General average
1. There must be a common danger;
2. That for the common safety part of the vessel or
the cargo or both is sacrificed deliberately;
3. That from the expenses or damages caused
follows the successful saving of the vessel and
cargo; and
4. That the expenses or damages should have been
incurred or inflicted after taking proper legal steps
and authority.
To constitute a general average loss, there must be a
voluntary sacrifice of part of the maritime adventure,
for the purpose, and with the effect of saving the
other parts of the adventure from an imminent peril
impending over the whole.
The interest so saved must be the sole object of the
sacrifice, and those interests only can be required to
contribute to the loss. The safety of the property not
included in the common adventure can neither be an
object of the sacrifice, nor a ground of contribution.
Common danger
It means that both the ship and the cargo, after has
been loaded, are subject to the sane 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.
Deliberate sacrifice
There must be a voluntary sacrifice of a part for the
benefit of the whole in order to justify general
average contribution. For example, it may involve a
voluntary jettison or casting away of some portion of
the associated interests for the purpose of avoiding
the common peril from the whole to a particular
portion of those interests.
Normally, the sacrifice is made through the jettison of
the cargo or part of the ship is thrown overboard
during the voyage. However, there can also be
general average if the sacrifice was not made during
the voyage in at least two cases:
1. Where the sinking of a vessel is necessary to
extinguish a fire in a port, roadstead, creek or bay;
and
2. Where cargo is transferred to lighten the ship on
account of a storm to facilitate entry into a port.
It should be noted that the loss can no longer be
considered a general average if the thing was
inevitably lost.
Successful sacrifice
No general contribution can be demanded if the
vessel and other cargo that are sought to be saved
were in fact not saved. However, of the ship was
saved from typhoon, there will be liability for general
average contribution even if the vessel will be
subsequently lost for some other reason during the
voyage.
Compliance with legal steps
In order to incur the expenses and cause the
damages corresponding to gross average, there
must be a resolution of the captain, adopted after
deliberation with the sailing crew and other persons
interested in the cargo who may be present.
21
The resolution adopted to cause the damages which
constitute general average must be necessarily be
entered in the log book, stating the motives and
reasons and irresistible and urgent causes which
impelled the captain if he cited of his own accord.
In the minutes, and after the resolution, shall be
stated in detail all the goods jettisoned and mention
shall be made of the injuries caused to those kept on
board. The captain shall be obliged to deliver one
copy of these minutes to the maritime judicial
authority of the first port he may make, within 24
hours after arrival, and to ratify it immediately under
oath.
Order of Jettison
The captain shall direct the jettison, and shall order
the goods cast overboard 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.
2. Those which are below the upper deck, always
beginning with hose of the greatest weight and
smallest value, to the amount and number absolutely
indispensable.
Examples of General Average
1. The goods or cash invested in the redemption of
the vessel or of the cargo captured and the
provisions, wages, and expenses of the vessel
detained during the time the settlement or
redemption is being made.
2. The goods jettisoned to lighten the vessel.
3. The cables and masts which are cut or rendered
useless, the anchors and the chains which are
abandoned, in order to save the cargo, the vessel, or
both.
4. The expenses of removing or transferring a portion
of the cargo in order to lighten the vessel and place it
in condition to enter a prot or roadstead and the
damage resulting thereform to the goods removed or
transferred.
5. The damage suffered by the goods of the cargo by
the opening made in the vessek in order to drain it
and prevent its sinking.
6. The expenses caused in order to float a vessel
intentionally stranded for the purpose of saying it.
7. The damage caused to the vessel which had to be
opened, scuttled or broken in order to save the
cargo.
8. The expenses for the treatment and subsistence of
the members of the crew who may have been
wounded or crippled in defending or saving the
vessel.
9. The wages of any member of the crew held as
hostage by enemies, privateers, or pirates, and the
necessary expenses which he may incur in his
imprisonment, until he is returned to the vessel or to
his domicile, should he prefer it.
10 The wages or victuals of the crew of a vessel
chartered by the month, during the time that it is
embargoed or detained by force majeure or by order
of the government, or in order to repair the damage
caused for the common benefit.
11. The depreciation resulting in the value if the
goods sold at arrival under stress in order to repair
the vessel by reason of gross average.
12. The expenses of the liquidation of the average.
Who bears general average
The code of commerce expressly provides that gross
or general average shall be borne by those who
benefited from the sacrifice. These include the
shipowner and the owners of the cargoes that were
saved. Contribution may also be imposed on the
insurers of the vessels or cargoes that were saved as
well as lenders on bottomry or respondentia.
Insurers
Article 859 of the Code of Commerce provides that
insurers of the vessel of the freightage and of the
cargo shall be obliged to pay for the indemnification
of the gross average, insofar as is required of each
one of the objects respectively. Insurance code
provides that the insurer is liable for any general
average in proportion to the contribution attaching to
his policy value where the said value is less than the
contributing value of the thing insured.
Lenders on bottomry and respondentia
Code of Commerce provides that lenders on
bottomry or respondentia shall suffer, in proportion to
their respective interest, the general average which
may take place in the goods on which the loan is
made.
Who is entitled to indemnity
The owner of the goods which were sacrificed is
entitled to receive the general average contribution.
However, the following goods even if sacrificed are
not covered:
1. Goods carried on deck unless the rule, special law
or customs of the place allow the same;
2. Goods that are not recorded in the books or
records of the vessel; and
3. Fuel for the vessel if there is more than sufficient
fuel for the voyage.
Deck cargo
The rule with respect to deck cargo, the rule is no
longer absolute that the sacrifice of deck is not
considered general average.
Effect of negligence
Article 848 of the Code of Commerce provides that
claims for averages shall not be admitted if they do
not exceed 5% of the interest which the claimant may
have in the vessel or in the cargo if it be gross
average and 1% of the goods damaged if particular
average, deducting in both cases the expenses of
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appraisal, unless there is an agreement to the
contrary. However, the common carriers cannot limit
their liability for injury or loss of goods when such
injury or loss was caused by its own negligence. The
law on average under the Code of Commerce cannot
be applied in determining liability where there is
negligence. Hence, the issue of negligence must be
first be addressed before the proper provision of the
Code on the extent of liability may be applied.
Apportionment
It provides that after the amount of the gross average
has been determined in accordance with the
provisions of the code, it shall be distributed pro rata
among the goods which are to cover the same.
Apportionment of general average is to be made in
accordance with the following mechanics: The value
of each of the contributing interests is multiplied by a
fraction which has as its numerator the sum of the
general average expense and has as its denominator
the sum of the contributing value.
Proof and liquidation of average
As previously noted, there shall be no general
average contribution if the procedure prescribed
under the code of commerce is not complied with.
Chapter 17 Collision
Collision is defined as an impact or sudden contact of
moving body with an obstruction in its line of motion,
whether both bodies are in motion or one is
stationary and the other no matter which, in motion.
Collision is therefore an impact or sudden contact of
a vessel with another both are in motion or one
stationary.
If one vessel is moving while the other is stationary,
the same is more appropriately called allision.
Zones in collision
First division covers all the time up to the moment
when the risk of collision may be said to have begun.
Within this zone no rule is applicable because none
is necessary. Each vessel is free to direct its course
as it deems best without reference to the movements
of the other vessel.
Second division covers the time between the
moment when the risk of collision begins and the
moment when it has become a practical certainty.
Third division covers the time of actual contact.
Error in extremis
In the first zone no rules apply. In the second the
burden is on the vessel required to keep away and
avoid the danger. The third zone covers the period in
which errors in extremis occur; and the rule is that
the vessel which has forced the privileged vessel into
danger is responsible even if the privileged vessel
has committed an error within that zone. Thus if it
was during the time when the sail vessel was
passing through the zone that it changed its course
to port in order to avoid, if possible, the collision, the
act may be said to have been done in extremis, and,
even if wrong, the sailing vessel is not responsible for
the result.
Applicable law
Liability for negligence in the absence of contrat is
governed by Article 2176 of the New Civil Code- the
provision 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
provisions of code of commerce on collision.
Rules on liability
Although the liability with respect to collision is not
governed by quasi-delict, liability in collision cases is
still negligence based. In other words, courts are still
called upon to determine the negligence of the
person involved in order to impose liability. The
person who caused the injury is both civilly and
criminally liable.
In determination of negligence the same test if a
reasonable man in the position of an expert that
applies in quasi-delict should also be applied
although with due consideration to the expertise of
the persons involved including the carrier itself, the
captain, officers and crew of the vessels.
Contributory negligence and last clear chance not
applicable.
In some respect, however, the rules that apply to
quasi-delict cannot be applied to collision cases. For
example, the view is that last clear chance and rule
on contributory negligence cannot be applied in
collision cases.
Thus, if both vessels were negligently operated, it
does not matter if the other has the last clear chance
of avoiding the injury because under Article 827,
each must suffer its own damage if both of them are
negligent. Although the negligence on the part of the
mate of the incoming vessel preceded the negligence
on the part of the mate of the outgoing vessel by an
appreciable interval of time, the first vessel cannot on
that account be absolved from responsibility.
Similarly, proof that the plaintiff was negligent will bar
recovery from the defendant in collision cases even if
the plaintiff’s negligence can be classified as merely
contributory.
Specific rules under the code of commerce
The code of commerce provides for liability rules in
case of collision. The liability of the carriers involved
would depend if only one is at fault, if both vessels
are at fault or if the entity at fault cannot be
estimated.
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One vessel at fault
If a vessel should collide with another, through or the
fault, negligence, or lack of skill of the captain, sailing
mate, or any other member of the complement, the
owner of the vessel at fault shall indemnify the losses
and damages suffered, after an expert appraisal.
Both vessels at fault
Article 827 provides that if the collision is imputable
to both vessels, each one shall suffer its own
damages, and both shall be solidarily responsible for
the losses and damages occasioned to their cargoes.
In other words, when it comes to the damages to
their respective vessels, the losses rest where they
fall. With respect to the damages to the cargoes, the
shipowners and ship agents of the vessels involved
in the collision are liable to the shipper. The liability is
joint and several; there will be no apportionment of
liability and each shipowner or ship agent is aliable
for the whole damage or injury.
Party at fault cannot be determined
Under Article 828 of the code of commerce, each
party shall also bear his own damage in cases in
which it cannot be determined which of the two
vessels has caused the collision. They are also
solidarily responsible for the losses and damages
occasioned to their cargoes.
It was also explained that the rule on solidarily
liability under Article 827 and 828 of the code of
commerce is applicable not only to a case where
both vessels may be shown to be actually
blameworthy but also to the case where it is obvious
that only one was at fault but the proof does not
show which.
Cause of Fortuitous event
If the vessel should collide with another, through
fortuitous event or force majeure, a vessel which is
properly anchored and moored should collide with
vessels nearby, causing the latter vessels damages,
the injury occasioned shall be considered as
particular average of the vessel run into.
Third person at fault
Article 831 of the code of commerce provides that if a
vessel should be forced by a third vessel to collide
with another, the owner of the third vessel shall
indemnify the losses and damages caused, the
captain thereof being civilly liable to said owner.
Sinking on the way to port
Article 833 of the code of commerce provides that a
vessel which, upon being run into, sinks immediately,
as well as that which, having been obliged to make a
port to repair the damages caused by the collision, is
lost during the voyage or is obliged to be stranded in
order to be saved, shall be presumed as lost by
reason of collision.
Protest
Collision is one of the cases when protest is
necessary. The requirement that protest must be
presented within 24 hours does not apply to small
boats engaged in river and bay traffic and inland
navigation.
Based on the above-quoted article 836, the non-filing
of the protest is excused in at least two cases
namely: (1) the persons interested who were not on
board or (2) persons interested were not in a
condition to make known their wishes. In these two
cases, the right to recover of the interested parties
who failed to file a protest is preserved.
Protest mandatory
It requires that the protest to be made and presented
to the proper authority within 24 hours after the
collision, or after the arrival of the injured boat in port,
is a prerequisite to the bringing of an action for
damages. The plaintiff cannot maintain an action for
damages if it failed to comply with these provisions of
the commercial code.
Limited liability rule
The real and hypothecary nature of maritime law
limits the liability of the shipowner and ship agent to
the value of the vessel in collision cases. Although
837 of the code does not require abandonment, it is
understood that abandonment is also necessary in
order to benefit from this limited liability.
Article 837. The civil liability incurred by the
shipowners in the case prescribed in this section,
shall be understood as limited to the value of the
vessel with all its appurtenances and freightage
earned during the voyage.
Chapter 18 Arrival under stress and shipwreck
Arrival under stress
A definition of “arrival under stress” can be derived
from Article 819 of the code of commerce which
states that it is the arrival of a vessel at the nearest
and most convenient port which was decided upon
after determining that there is well founded fear of
seizure, privateers, or pirates or by reason of any
accident of the sea disabling it to navigate.
Determination of propriety
1. The captain should determine during the voyage if
there is well founded fear of seizure, privateers and
other valid grounds;
2. The captain shall then assemble the officers;
3. The captain shall summon the persons interested
in the cargo who may be present and who may
attend but without right to vote;
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4. The officers shall determine and agree if there is
well founded reason after examining the
circumstances. The captain shall have the deciding
vote;
5. The agreement shall be drafted and the proper
minutes shall be assigned and entered in the
logbook;
6. Objections and protests shall likewise be entered
in the minutes.
Protest
It is duty of a captain to present himself, when
making a port in distress, to the maritime authority if
in the Philippines and to the consul of the Republic of
the Philippines if in a foreign country, before 24 hours
have elapsed, and to make a statement of the name
of registry, and port of departure of the vessel, of its
cargo, and the cause of arrival which declaration
shall be vised by the authority or the consul, if after
examining the same it is found to be acceptable,
giving the captain the proper certificate proving his
arrival in distress and the reason thereof. In the
absence of the maritime authority or of the consul,
the declaration must be made before local authority.
When arrival under stress is improper
The lawfulness of the arrival under stress determine
if damages will be shouldered by the shipowner and
the ship agent. Article 820 identifies the different
cases of unlawful arrival under stress for which
liability is imposed on the shipowner and the ship
agent.
1. If the lack of provisions should arise from the
failure to take the necessary provisions for the
voyage according to usage and customs, or if they
should have been rendered useless or lost through
bad stowage or negligence in their care.
2. If the risk of enemies, privateers, or pirates should
not have been well-known, manifest and based on
positive and probable facts.
3. If the defect of the vessel should have been arisen
from the fact it was not repaired, rigged, equipped,
and prepared in a manner suitable for the voyage, or
some erroneous order of the captain.
4. When malice, negligence, want of foresight, lack of
skill on the part of the captain exists in the act
causing the damage.
Expenses
If the arrival under stress is proper, the shipowner
and the ship agent will only be liable for the
expenses for the same arrival. On the other hand,
the shipowner and the ship agent will be liable for the
same expenses, and in addition, they shall be
solidarily liable for the damages caused to the
cargoes by such arrival under stress.
However, applying the provisions of the Civil Code,
this presupposes that extraordinary diligence is
exercised by the carrier. This is likewise consistent
with Article 829 of the Code of Commerce which
provides that arrival under stress is improper when
malice, negligence, want of foresight, or lack of skill
on the part of the captain exists in the act causing the
damage” and if the ship is unseaworthy under
paragraph 3 of article 820.
Unloading of cargoes
In case of repairs to the vessel, the captain must
request from the competent judge or court for the
removal, and carry it out with the knowledge of the
person interested in the cargo, or his representative,
should there be any. In foreign port, it should be the
duty, of the Philippine Consul, where there is one to
give the authorization. The expense shall be for the
account of the ship agent or owner, and in the
second, they shall be chargeable against the owners
of the merchandise for whose benefit the act was
performed.
Custody of cargo
Captain is responsible for the custody and
preservation of cargo which has been unloaded
exept in cases of force majeure.
Liability of captain
The captain shall be responsible for the damages
caused by his delay, if after the cause of the arrival
under stress has ceased, he should not continue the
voyage.
If the cause of arrival should have been the fear of
enemies, privateers, or pirates, a deliberation and
resolution in a meeting of the officers of the vessel
and persons interested in the cargo who may be
present, in accordance with the provisions contained
in Article 819, shall precede the departure.
Shipwreck
Shipwreck has been defined as the “demolition or
shattering of a vessel caused by her driving ashpre
or on rocks and shoals in the mid seas, or by the
violence of winds and waves in tempests.
Protest
Protest is necessary in shipwrecks. Paragraph 15 of
Article 612 makes it the obligation of ship captain to
make the proper protest in due form at the first port
arrival, before the competent authority ot the
Philippines consul, within 24 hours, specifying therein
all the incidents of the wreck, in accordance with
subdivision 8 of the same article
Charter parties
Neither merchandise lost by reason of shipwreck or
stranding nor those seized by the pirates or enemies,
shall pay freightage.
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If the freightage should have been paid in advance, it
shall be returned, unless there is an agreement to
the contrary.
Loan
In case of shipwreck the amount liable for the
payment of the loan shall be reduced to the proceeds
of the goods saved, after deducting the costs of the
salvage.
If the loan should be on the vessel or any of its parts,
the freightage earned during the voyage for which
said loan was contracted shall also be liable for its
payment, as far as it may reach.
If the same vessel or cargo should be the object of a
loan on bottomry or respondentia and marine
insurance, the value of what may be saved in case of
shipwreck shall be divided between the lender and
the insurer, in proportion to the legitimate interest of
each one, taking consideration, for this purpose only,
the principal with respect to the loan, and without
prejudice to the right of preference of other creditors
in accordance with Article 580.
Chapter 19 Salvage
Salvage may be defined as a service which one
person renders to the owner of a ship or goods, by
his own labor, preserving the goods or the ships
which the owner or those entrusted with the care of
them have either abandoned in distress at sea, or
unable to protect and secure.
Rationale
Salvage is founded on the equity of remunerating
private and individual services performed in saving,
in whole or in part, a ship or its cargo from impending
peril, or recoverin them after actual loss. A claim for
salvage rests on the principle that, unless the
property be in fact saved by those who claim the
compensation, it cannot be allowed, however
benevolent their intention and however heroic their
conduct.
Kinds of salvage
1. Voluntary, wherein the compensation is dependent
upon success;
2. Rendered under a contract for a diem or per
horam wage, payable at all events; or
3. Under a contract for a compensation payable only
in case of success.
Claim for valid salvage
The salvage law governs and provides for a reward
for voluntary salvage. Section 1 of the Salvage Law
provides that when in a case of shipwreck, the vessel
or its cargo shall be beyond the control of the crew,
or shall have been abandoned by them, and picked
up and conveyed to a safe place by other persons,
the latter shall be entitled to a reward for the salvage.
Other persons who assists in saving the vessel or its
cargo from shipwreck shall be entitled to a similar
reward.
Elements
1. There must be a marine peril;
2. The service is voluntarily rendered and is not
required as an existing duty or from a special
contract;
3. There must be success in whole or in part or that
the service rendered contributed to such success.
4. The vessel is shipwrecked beyond the control of
the crew or shall have been abandoned.
Persons not entitled to salvage compensation
The salvor must have no relation, contractual or
otherwise, upon the ship in distress. The following
persons shall have no right to a reward, namely: (1)
the crew of the vessel shipwreck or which was in
danger of shipwreck; (2) he who shall have
commenced the salvage in spite of opposition of the
captain or his representatives; and (3) he who shall
have failed to comply with the provisions of section 3.
Derelict required
Derelict is defined as “a ship or her cargo which is
abandoned and deserted at sea by those who were
in charge of it, without any hope of recovering it, or
without any intention of returning to it. Whether the
property is to be adjudged derelict is determined by
ascertaining what was the intention and expectation
of those in charge of it when they quitted it. A derelict
is a boat or vessel found entirely deserted or
abandoned on the sea without hope or intention of
recovery or return by the master or the crew, whether
resulting from wreck, accident, necessity, or
voluntary abandonment.
Jetsam and flotsam
Unless abandoned, still the property of their original
owners. These terms are defined as follows:
1. Jetsam are goods that were thrown off a ship
which was in danger.
2. Flotsam are goods that floated of the ship while
the ship was dnger or when it sank.
3. Ligan are goods left at sea on the wreck or tied to
a bouy so that they can be recovered later.
Basis of entitlement to salvage reward.
A salvage reward should neither be too liberal nor
too stingy. In should constitute a sufficient
compensation for the outlay and effort of the salvors,
taking into account the rules prescribed by section 10
of Act no. 2616. It should be liberal enough to offer
an inducement to others to renders services in
similar emergencies in the future.
Limit of salvage fee
In the absence of an agreement or if the agreement
is impugned because the reward is excessive, the
Regional Trial Court shall fix the reward for salvage.
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The limit of reward is 50% of the net amount of the
proceeds of the sale of the things saved. In case
there is a public auction, the net amount is
determined by deducting for the proceeds first the
expenses of their:
1. custody
2. conservation
3. advertisement
4. auction
5. whatever taxes or duties they should pay for their
entrance
6. and then there shall be deducted the expenses of
salvage
Quantum meruit not applicable
Furthermore, compensation as salvage should not be
viewed by the admiralty courts merely as pay on the
principle of quantum meruit or as a renumeration pro
opera at labore, but as a reward given for perilous
services, voluntarily rendered, and as an inducement
to mariners to embark to such dangerous enterprises
to save life and property.
1. Principally the expenditures made to recover or
save the vessel or the cargo or both;
2. The zeal demonstrated, the time employed, the
services rendered;
3. The excessive express occasioned the number of
persons who aided;
4. The danger to which they and their vessels were
exposed as well as that menaced the things
recovered or salvaged; and
5. The value of such things after deducting the
expenses.
Rights and obligations of salvors and owners
The salvor is of course entitled to compensation for
services rendered, and in the enforcement of that
right, he has, under the salvage law, lien upon the
property salvaged whereby he is not bound to part
with the possession of the vessel salvaged or of the
cargo saved until he is paid his due compensation.
1. If the ship and its cargo are saved together by the
salvor, the salvage allowance should be charged
against the ship and cargo in the proportion of their
respective values, as in the case of general average,
and neither is liable for the salvage due from the
other.
2. The salvor has a right of possession of a derelict
for purposes of a salvage claim.
3. When a vessel is found at sea, deserted, and has
been abandoned by the master and crew without the
intention of returning and resuming possession, she
is, in the sense of the law, derelict, abandoned, and
the finder who takes possession which can maintan
against her gains a right of possession which he can
maintain against the true owner.
4. On the other hand, the owner of the vessel which
is a derelict does not renounce his right to the
property. There is no presumption of an intention to
abanon such property. There is no presumption of an
intention to abandon such property rights on the part
of such owner under the salvage law. What the
owner abandons temporarily is his right of
possession, which is thereby transferred to the salvor
who becomes bound to preserve the property with
good faith and bring it to a place of safety for the
owner’s use.

5. The salvor who saves or pickups a vessel or

things saved after the salvage is accomplished,
provided that he pays, or gives a bond to secure the
expenses and the proper reward. The amount and
sufficiency of the bond, in the absence of agreement,
shall be determined by the collector of customs or by
the judge of the court of first instance of the province
where the things saved may be found.

6. If the owner does not make any claim within three

months after the publication by the authorities of a
salvage report, the things saved shall be sold at a
public auction. the proceeds of which shall be
deposited in the national treasury after deducting the
expenses and the proper reward to which the salvor
is entitled.

7. The owner of the salving vessel is also entitled to

the salvage reward for the use of his vessel in
rendering salvage services even though he may not
have been present at the time the salvage service
was rendered. Renumeration for salvage service is
awarded to the owners of the salving vessel on
account of the danger to which the service exposes
their property, and the risk which they run of loss in
suffering their vessels engaged in such perilous
undertaking.

8. The reward for salvage or assistance shall be

divided between the owner, the captain, and the
remainder of the crew of the latter vessel.

Maritime lien

A salvor, in maritime law, has an interest in the

property; this is called a lien, but it never goes, in the
absence of a contract expressly made, upon the
principle that the service creates a property in the
thing saved. The salvor is, to all intents and
purposes, a joint owner and If the property is lost he
must bear his share like the other joint owners.

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