Chartering

Charter party

A charter party is a contract by which an entire ship or some principal part thereof is let
by the owner to another person for a specified time or use.

Differently stated, it is a contract by which an entire ship, or some principal part thereof
is let by the owner to another person for a specified time or use: a contract of
affreightment is one by which the owner of a ship or other vessel lets the whole or part
of her to a merchant or other per son for the conveyance of goods, on a particular
voyage, in consideration of the payment of freight (Tabacalera Insurance Co. vs. North
Front Shipping Services, Inc., G.R. No. 119197. May 16, 1997, 272 SCRA 527).

Charter party as a special contract in maritime commerce

A charter party is one of the special contracts of maritime commerce which also include
the following:

1. Bill of lading

2. Contract of transportation of passengers on voyages

3. Loan on bottomry

4. Loan on respondentia; and

5. Marine insurance.

Parties to a charter party

The parties to a charter party are:

1. The ship owner or ship agent; and

2. The charterer.
 

Kinds of charter party

Charter or charter parties are of two (2) kinds, viz:

1. Charter of demise or bareboat; and

2. Contracts of affreightment (Puromines, Inc. vs. Court of Appeals, G.R. No. 91228,
March 22, 1993, 220 SCRA 281).

Charter of demise or bareboat

A demise or bareboat charter of the vessel is a kind of charter party under which the
charterer is generally considered as owner for the voyage or service stipulated. The
charterer mans the vessel with his own people and becomes, in effect, the owner pro
hac vice, subject to liability to others for damages caused by negligence. To create a
demise, the owner of a vessel must completely and exclusively relinquish possession,
anything short of such a complete transfer is a contract of affreightment (time or voyage
charter party) or not a charter party at all (Puromines, Inc. us. Court of Appeals, supra).

Owner pro hac vice

Pro hac vice literally means "for or on this occasion only."

The term “owner pro hac vice" means that the charterer is considered the owner of the
vessel for the voyage or service stipulated. The charterer and not the owner of the vessel
is therefore liable for the vessel's expenses, including the seaman's wages, for the entire
duration of the voyage.

Contract of affreightment

A contract of affreightment is one in which the owner of the vessel leases part or all of
its space to haul goods for others. It is a contract for a special service to be rendered by
the owner of the vessel and under such contract the general owner retains the
possession, command and navigation of the ship, the charterer or freighter merely
having use of the space in the vessel in return for his payment of the charter hire. If the
charter is a contract of affreightment, which leaves the general owner in possession of
the ship as owner for the voyage, the rights, responsibilities of ownership rest on the
owner and the charterer is usually free from liability to third persons In respect of the
ship (Puromines, Inc. vs. Court of Appeals, supra).

Kinds of contract of affreightment

A contract of affreightment is of two (2) kinds, namely:

1. Time charter; and

2. Voyage or Trip charter.

Time charter

A time charter, like a demise charter, is a contract for the use of a vessel for a specified
period of time or for the duration of one or more specified voyages. In this case,
however, the owner of a time-chartered vessel (unlike the owner of a vessel under a
demise or bare-boat charter), retains possession and control through the master and
crew who remain his employees. What the time charterer acquires is the right to utilize
the carrying capacity and facilities of the vessel and to designate her destinations during
the term of the charter (Litonjua Shipping Company Inc. us. National Seamen Board, G.R.
No. L-51910, August 10, 1989, 176 SCRA 189).

Voyage charter

A voyage charter, or trip charter, is simply a contract of affreightment, that is, a contract
for the carriage of goods from one or more ports of loading to one or more ports of
unloading on one or on a series of voyages. In a voyage charter. the master and crew
remain in the employ of the owner of the vessel (Litonjua Shipping Company Inc. vs.
National Seamen Board, supra).

 
Under a voyage charter, the shipowner retains the possession, command and navigation
of the ship, the charterer or freighter merely having use of the space in the vessel in
return for his payment of freight. An owner who retains pos session of the ship remains
liable as carrier and must answer for loss or non-delivery of the goods received for
transportation (Puromines, Inc. us. Court of Appeals, supra),

Distinctions between a civil law lease and charter party

LEASE CHARTER PARTY

1. It is a civil law concept.
2. If the lease is for a definite period, the lessee
cannot give up the lease by paying a portion of
the amount agreed upon.
3. If the leased property is sold to a party who
knows of the existence of lease, the new owner
must respect said lease.
1. It is a commercial law concept.
2. The charterer may rescind the charter party
by paying the half of the freightage agreed
upon with the shipowner or ship agent.
4. The new owner is not compelled to respect
the charter party for as long as he can load the
vessel with his own cargo

Distinctions between a charter party and a bill of lading

CHARTER PARTY BILL OF LADING

1. It is a consensual contract 1. It is a real contract
2. It is an entire or complete contract 2. It is more like a private receipt which the
ship captain gives to in order to accredit the
goods received from persons.

Distinctions between demise or bareboat charter party and a contract of

affreightment

DEMISE OR BAREBOAT CHARTER CONTRACT OF AFFREIGHTMENT

1. The charterer becomes liable to other parties
due to its own negligence.
2. the charterer is regarded as the vessel’s
owner pro hac vice.
3. The owner of the vessel relinquishes the
possession, command, navigation of the vessel
to the charterer.
4. The common carrier is converted into private
carrier
1. The owner remains liable as a carrier and
must answer for any breach of duty.
2. The charterer is not regarded as the owner of
the vessel.
3. The owner of the vessel retains the
possession, command and navigation of the
ship.
4. The common carrier is not converted to a
private carrier.
Persons who can make a charter

The following persons may validly make a charter:

1. The owner or owners of the vessel, either in whole or in majority part, who have legal
control and possession of the vessel;

2. The ship agent if authorized by the owner or owners of the vessel or given such
power in the certificate of appointment (Art. 598, Code of Commerce);

3. The captain in the absence of the ship agent or consignee and only if the former acts
in accordance with the instructions of the agent or owner and protects the latter's
interests (Art 609. Id.);

4. A charterer who may subchapter the entire vessel to third persons only if not
prohibited in the original charter (Art. 679, Id.).

Requirements of a valid charter party

The requisites of a valid charter party are as follows:

1. Consent of the contracting parties;

2. Existing vessel which should be placed at the disposal of the shipper:

3. Freight; and

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

Instances when a charter party may be rescinded

A charter party may be rescinded in the following instances:

1. At the request of the charterer:

- upon abandoning the charter and paying half the price

- for error in tonnage or flag:

- for failure to place vessel at charterer's disposal

- upon return of the vessel due to pirates, enemies and bad weather; and

- upon arrival at port for repairs; if repairs take thirty (30) days or less, full freightage
shall be paid; if more, freightage shall be in proportion to the distance covered:

2. At the request of the shipowner:

- if the extra lay days terminate without the cargo being placed alongside the vessel:
and

- if the vessel is sold by said owner before loading by the charterer;

3. At the occurrence of a fortuitous event such as:

- war;

- blockade;

- prohibition to receive cargo at port of destination;

- embargo; and

- inability of the vessel to navigate.

Freight defined

Freight generally refers to goods transported by a vehicle or vessel, especially by a

commercial carrier. It is other wise known as the cargo. Freight also pertains to the
charge paid for the carriage or transportation of goods by land, air or sea.
 

Freightage

Freightage is the ordinary means of transporting goods by common carriers and the
charges for such transportation.

Freightage, in the sense of a policy of marine insurance, signifies all the benefits derived
by the owner, either from the chartering of the ship or its employment for the carriage
of his own goods or those of others (Sec. 104, P.D. No. 612 or the Insurance Code, as
amended by R.A. No. 10607).

Requisites and contents of charter party

charter party must be drawn in duplicate and signed A by the contracting parties and,
when either does not know how or is not able to do so, by two (2) witnesses at his
request.

The charter party shall contain, besides the conditions freely stipulated, the following
circumstances:

1. The kind, name and tonnage of the vessel;

2. Its flag and port of registry;

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

4. The name, surname and domicile of the ship agent, if the latter should make the
charter party;

5. The name, surname and domicile of the charterer and, if he states that he is acting by
commission that of the person for whose account he makes the contract;

6. The port of loading and unloading;

7. The capacity, number of tons or the weight or measurement which they respectively
bind themselves to load and to transport, or whether the charter party is total;
8. The freightage to be paid, stating whether it is to be a fixed amount for the voyage or
so much per month, or for the space to be occupied, or for the weight or measure of the
goods of which the cargo consists, or in any other manner whatsoever agreed upon;

9. The amount of primage to be paid to the captain ;

10. The days agreed upon for loading and unloading; and

11. The lay days and extra lay days to be allowed and the demurrage to be paid for each
of them (Art. 652, Code of Commerce).

Charter party clauses

The clauses which may be included in a charter party are the following:

1. New Jason clause; and

2. Paramount clause.

Jason clause

The New Jason clause is a clause in a charter party or one inserted in a bill of lading that
allows the shipowner to claim general average contributions from the cargo interests if
any accident, danger, damage or disaster occurs, with or without negligence on the part
of the shipowner or his employees, and the cargo carrier has to incur any general aver
age sacrifice, loss or expense and possibly also pay salvage charges.

Paramount clause

Paramount clause is a provision in a charter party or a bill of lading that specifies what
law of the jurisdiction will govern the agreement. This usually incorporates the Car rage
of Goods by Sea Act (46 U.S.CA. S 1300) into the charter. It is generally a clause that
subjects all other clauses in a printed contract of carriage, whether it be contained in a
charter party or in a bill of lading to such terms incorporated by the paramount clause.
 

Rights and obligations of the shipowner or ship agent

The rights and duties of the shipowner or ship agent under a charter party are as
follows:

1. To observe the capacity of the vessel or that expressly designated in its registry, a
difference greater than two percent (2%) between that stated in the charter party and its
true capacity not being permissible;

2. To admit more cargo per price stipulated in the contract if it can be stowed without
injuring the other shippers or to refuse the same if in order to load it, the vessel would
be thrown out of trim; to unload merchandise clandestinely placed on board or
transport them if he can do so with the vessel in trim but demanding the highest price
stipulated for said voyage;

3. To substitute for his account another vessel suitable for the same voyage if, after
receiving a part of the freight for the charterer or shipper, he is unable to find sufficient
cargo to make up at least three-fifths (3/5) of the amount which the vessel may hold;

4. not to accept cargo from any other person without the consent of the charterer if the
vessel has been chartered in whole. Should he do so, he may be obliged by the
charterer to unload it and to indemnify the latter for the losses suffered thereby;

5. To be liable for all the losses caused to the charterer by reason of the voluntary delay
of the captain in putting the vessel to sea, provided he has been requested, notarially or
judicially, to put to sea at the proper time;

6. To make efforts to find freight and should he not find any after the lay days and extra
lay days have elapsed, he shall make a protest and return to the port where the charter
was made;

7. To put the vessel in a condition to navigate at the time of receiving the cargo.
Otherwise, the captain shall lose the freightage and shall indemnify the charterers if the
latter should prove that the vessel is not in such condition;
8. To proceed to the nearest safe and neutral port in case of war or blockade if a
declaration of war or a blockade should take place during the voyage and request and
await orders from the shipper (Arts. 669-678, Code of Commerce).

Lay days defined

Lay days are the days that charter parties are allowed to food and unload the cargo.
They are the number of days allowed by a port authority for a ship to load or unload its
cargo without incurring demurrage or late charges.

Extra lay days

Extra lay days are the days that ensue after the lapse of the lay days

Demurrage

Demurrage is the sum fixed in the charter party as a remuneration to the owner of the
ship for the detention of his vessel beyond the number of days allowed by the charter
party for loading or unloading or for sailing. It is a charge payable to the owner of a
chartered ship for failure to load or discharge the ship within the period agreed upon

Obligations of charterers

The duties of charterers under a charter party are as follows:

1. To sub-charter the whole or part of the vessel entirely chartered by him, the captain
not being allowed to refuse to receive on board the freight de livered by the second
charterers, provided that the conditions of the first charter are not changed. and that the
price agreed upon is paid in full to the person from whom the vessel is chartered, even
though the full cargo is not embarked;

2. To pay the freightage of the amount he fails to ship, if the captain does not take other
freight to complete the load of the vessel, in which case the first charterer shall pay the
difference, should there be any.

3. To be liable for loading goods different from those stated at the time of executing the
charter party, without the knowledge of the person from whom the vessel was chartered
or of the captain, should such deviation give rise to losses by reason of confiscation,
embargo, detention, or other causes, to the person from whom the vessel was.
chartered or to the shippers

4. To be liable, jointly with the owner of the merchandise shipped for the purpose of
illicit commerce and taken on board with the knowledge of the person from whom the
vessel was chartered or of the captain, for all the losses which may be caused the other
shippers:

5. To wait until the vessel is repaired, in case of making a port to repair the hull,
machinery or equipment of the vessel:

6. To bear the expenses of unloading and reloading should the shippers or the court, or
the consul, or the competent authority in a foreign country, for the benefit of the cargo
subject to deterioration, order the merchandise to be unloaded:

7. To pay the full freightage, the expenses of the arrival made at his request and the
losses and damages caused the other shippers if the charterer. without the occurrence
of any of the cases of force majeure mentioned in Article 683, should wish to unload his
merchandise before arriving at the port of destination;

8. To unload the merchandise before the beginning of the voyage covered by a charter
for transportation of general freight and pay one-half (1/2) of the freightage, the
expense of stowing and restowing the cargo and any other damage which he may cause
the other shippers,

9. To pay the captain the freightage due and the other expenses for which said cargo
may be liable immediately after the vessel has been unloaded and the cargo placed at
the disposal of the con signee. The primage must be paid in the same proportion and at
the same time as the freightage:
10. Not to abandon the merchandise damaged on account of inherent defect or
fortuitous event for the payment of the freightage and other expenses and

11. To abandon the merchandise if the cargo should consist of liquids and they have
leaked out with only one-fourth (1/4) part of their contents remaining in the containers
(Arts. 679-687. Id.).

Primage

Primage is the bonus to be paid to the captain after a successful voyage

Rescission of a charter party at the charterer's request

A charter party may be rescinded at the request of the charterer:

1. If before loading the vessel, he does not agree with that stated in the certificate of
tonnage or if there is an error in the statement of the flag under which she sails;

2. If the vessel is not be placed at the disposal of the charterer within the period and in
the manner agreed upon;

3. If after the vessel was put to sea, she returns to the port of departure on account of
risks from pi. rates, enemies or bad weather and the shippers agree to unload her;

4. If the charter is made by the months, the charterers shall pay the full freightage for
one (1) month if the voyage is for a port in the same waters and for (2) two months If for
a port in different waters;

5. If the vessel arrives at a port during the voyage in order to make urgent repairs and
the charterers prefer to dispose of the merchandise. When the delay does not exceed
thirty (30) days, the ship pers shall pay the full freightage for the voyage out. Should the
delay exceed thirty (30) days, they shall only pay the freightage in proportion to the
distance covered by the vessel (Art. 688, Id.).
 

Rescission of a charter party at the shipowner's request

At the request of the person from whom the vessel is chartered, the charter party may
be rescinded:

1. If the charterer, at the termination of the extra lay days, does not place the cargo
alongside the vessel. In such case, the charterer must pay half the freight stipulated plus
the demurrage due for the lay days and extra lay days;

2. if the shipowner or the person from whom the vessel was chartered sells it before the
charterer has begun loading it and the buyer loads it for his own account. In such case,
the seller shall indemnify the charterer for the losses he may suffer. If the new owner of
the vessel should not load it for his own account. the charter party shall be respected
and the seller shall indemnify the buyer if the former did not inform him of the charter
pending at the time of making the sale (Art. 689. Id.).

Rescission of a charter party due to fortuitous causes

The charter party may be rescinded and all actions arising therefrom shall be
extinguished if, before the vessel sails from the port of departure, any of the following
cases should Occur:

1. A declaration of war or interdiction of commerce with the power to whose ports the
vessel is to make its voyage;

2. Blockade of the port of destination of the vessel or the breaking out of an epidemic
after the contract was executed;

3. The prohibition to receive at the said port the merchandise constituting the cargo of
the vessel;

4. An indefinite detention by reason of an embargo of the vessel by order of the

government or for any other reason independent of the will of the ship agent; and
5. The inability of the vessel to navigate without the fault of the captain or ship agent in
which case the unloading shall be made for the account of the charterer (Art. 690, Id.).

Transshipment defined

Transshipment refers to the transfer of cargo from one vessel or conveyance to another
vessel for further transit to complete the voyage and carry the cargo to its final
destination (Sec 2[m), RA No. 10668). More specifically, it is the act of:

1. Taking a cargo out of one ship and loading it into another; or

2. Transferring goods from the vessel stipulated in the contract of affreightment to

another vessel before the place of destination named in the contract has been reached;
or

3. Transferring for further transportation from one ship or conveyance to another.

There is transshipment whether or not the same per son, firm or entity owns the vessels
for the fact of transshipment is not dependent upon the ownership of the transporting
ships or conveyances or in the change of carriers, but rather on the fact of the actual
physical transfer of cargo from one vessel to another.

Transshipment of freight without legal excuse, however competent and safe the vessel
into which the transfer is made, is a violation of the contract and an infringement of the
right of the shipper, and subjects the carrier to liability if the freight is lost even by a
cause otherwise excepted (Magellan Manufacturing Marketing Corporation us. Court of
Appeals, G.R. No. 95529, Aug. 22, 1991, 201 SCRA 102)