LOAN ON BOTTOMRY AND

RESPONDENTIA
 LOAN ON BOTTOMRY AND
RESPONDENTIA
• LOAN ON BOTTOMRY- is secured by the ship owner or ship agent guaranteed by the vessel itself and
payable only upon the arrival of vessel at destination. This can also be secured by the captain outside
the residence of the ship owner or ship agent.
• Bottomry is a contract whereby the owner of a ship borrows for the use, equipment or repair of the
vessel, for a definite term, and pledges the ship (or the keel or bottom of the ship pars pro toto) as
security, with a stipulation that if a ship is lost during the voyage or during the limited time on account
of the perils, the lender shall lose his money.
• LOAN ON RESPONDENTIA- is a similar loan but one which is secured by the owner of the cargo
payable upon safe arrival of cargo at destination. The ship owner, agent or captain cannot secure the
loan.
There must be a marine risk upon which the loan is predicated such that if the vessel or cargo is lost by
virtue of that risk, the lender loses the capital or money lent.

NOTE: Under Article 725 on Code of Commerce, 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.
 FORMS AND REQUISITES
ARTICLE 720. Loans on bottomry or respondentia may be executed:
1. By means of a public instrument.
2. By means of a bond signed by the contracting parties and the broker who took
part therein.
3. By means of a private instrument.
Under whichever of these forms the contract is executed, it shall be entered in the
certificate of the registry of the vessel and shall be recorded in the commercial
registry, without which requisites the credits originating from the same shall not
have, with regard to other credits, the preference which, according to their nature,
they should have, although the obligation shall be valid between the contracting
parties.
ARTICLE 720
The contracts made during a voyage shall be governed by the provisions of Articles 583
and 611, and shall be effective with regard to third persons from the date of their
execution, if they should be recorded in the commercial registry of the port of registry
of the vessel before eight days have elapsed from the date of her arrival. If said eight
days should elapse without the record having been made in the commercial registry,
the contracts made during the voyage of a vessel shall not have any effect with regard to
third persons, except from the day and date of their entry.
In order that the bonds of the contracts celebrated in accordance with No. 2 may have
legal force, they must conform to the registry of the broker who took part therein. In
those celebrated in accordance with No. 3 the acknowledgment of the signature must
precede.
Contracts which are not reduced to writing shall not be the basis for a judicial
action.
ARTICLE 721. In a bottomry or respondentia bond there must be stated:
1. The kind, name, and registry of the vessel.
2. The name, surname, and domicile of the captain.
3. The names, surnames, and domicile of the person giving and of the person
receiving the loan.
4. The amount of the loan and the premium stipulated.
5. The time for repayment.
6. The goods pledged to secure repayment.
7. The voyage for which the risk is run.
 LOAN ON BOTTOMRY AND
RESPONDENTIA AND ORDINARY
LOAN
LOAN ON BOTTOMRY AND RESPONDENTIA ORDINARY LOAN (MUTUUM)
Rate of interest is not subject laws on usury on Laws on usury (ceiling fixed for interest that may be
account of the extraordinary risk involved validly agreed upon) applies
Duly established existence of a marine risk is Marine risk is not necessary
necessary
The vessel or cargo is hypothecated as security No security is required
for the loan. The loss of the vessel or cargo
extinguishes the obligation to repay
Must be executed in accordance with the form and Formal requisites of an ordinary contract will suffice
manner prescribed by the code of commerce
The last lender is a preferred creditor The first lender is a preferred creditor
Must be recorded in the registry of vessels to bind No registration is required
third persons
 WHEN LOAN ON BOTTOMRY OR
RESPONDENTIA REGARDED AS
SIMPLE LOAN
ARTICLE 726. If the lender should prove that he loaned a larger amount than the value of the article liable for
the bottomry loan, by reason of fraudulent measures employed by the borrower the loan shall only be valid
for the amount at which said object is appraised by experts.
The surplus principal shall be returned with legal interest for the whole period of the duration of the
disbursement.
ARTICLE 727. If the full amount of the loan contracted to load the vessel should not be made use of for the
cargo, the surplus shall be returned before clearing.
The same procedure shall be observed with regard to the goods taken as a loan if they could not all have
been loaded.
ARTICLE 729. Should the goods on which money is taken not be subjected to any risk, the contract shall be
considered an ordinary loan, the borrower being under the obligation to return the principal and interest at
the legal rate, if the interest stipulated should not have been lower.
Note: Under existing laws, the parties to a loan, whether ordinary or maritime, may agree on any rate of
interest. (CB Circular 905), provided, the same is not contrary to law, morals, good customs, public order and
public policy. I(Art. 1306 of the Civil Code)
 LOAN ON BOTTOMRY AND
RESPONDENTIA AND MARINE
INSURANCE
MARINE INSURANCE LOAN ON BOTTOMRY OR
RESPONDENTIA
Indemnity is paid after the loss has Indemnity is paid in advance by way of
occurred a loan
In case of loss of the vessel due to a risk In case of loss of the vessel due to a
insured against, the obligation of the marine peril, the
insurer becomes absolute obligation of the borrower to pay is
extinguished
Consensual contract Real contract
 CONCURRENCE OF MARINE INSURANCE AND
LOAN ON BOTTOMRY/RESPONDENTIA
1. The insurable interest of the owner of a ship hypothecated by bottomry is only the excess of the
value over the amount secured by bottomry. (Sec. 101, Insurance Code)
2. 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 shall be divided, in case of shipwreck, between the lender
and the underwriter, in proportion to the legitimate interest of each one, taking into consideration,
for this purpose only, the principal with relation to the loan, and without prejudice to the right of
preference of other creditors in accordance with Article 580. (Art. 735)

• Note: If a vessel is hypothecated by bottomry only the excess is insurable, since a loan on bottomry
partakes of the nature likewise of an insurance coverage to the extent of the loan accommodation.

• The same rule would apply to the hypothecation of the cargo by respondentia.
 HYPOTHECARY NATURE OF
BOTTOMRY/ RESPONDENTIA
ARTICLE 731:
General Rule: The actions which may be brought by the lender shall be extinguished by the absolute loss of
the goods on which the loan was made, if said loss arose from an accident of the sea at the time and during
the voyage designated in the contract, and should it be proven that the cargo was on board.
Exception:
1. if the loss were caused by the inherent defect of the thing;
2. through the fault or malice of the borrower;
3. through barratry on the part of the captain;
4. if it were caused by damages suffered by the vessel as a consequence of being engaged in contraband;
and
5. if it arose through loading the merchandise on a vessel other than that designated in the contract, unless
this change should have been made by reason of force majeure.
The proof of the loss is incumbent upon the person who received the loan, as well as the proof of the
existence in the vessel of the goods declared to the lender as the object thereof.
ARTICLE 724. The loans may be constituted jointly or separately:
1. On the hull of the vessel.
2. On the rigging.
3. On the equipment, provisions, and fuel.
4. On the engine, if the vessel is a steamer.
5. On the cargo.

If the loan is constituted on the hull of the vessel, there shall be understood as also subject to the liability of the loan, the
rigging, equipment and other goods, provisions, fuel, steam engines, and the freight earned during the voyage subject to
the loan.

If the loan is made on the cargo, all that constitutes the same shall be subject to the repayment; and if on a particular
object of the vessel or of the cargo, the object exclusively and specifically mentioned only shall be liable.
ARTICLE 728. The loan which the captain takes at the point of residence of the owners of the vessel shall only affect that
part of the latter which belongs to the captain, if the other owners or their agents should not have given their express
authorization thereto or should not have taken part in the transaction.

If one or more of the owners should be requested to furnish the amount necessary to repair or provision the vessel, and
should not do so within twenty-four hours, the interest which the parties in default may have in the vessel shall be liable
for the loan in the proper proportion.

Outside of the residence of the owners the captain may contract loans in accordance with the provisions of Articles 583
and 611.
ARTICLE 732. 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 was made.

In particular averages, in the absence of an express agreement between the contracting parties, the lender on bottomry
or respondentia shall also contribute in proportion to his respective interest, should it not belong to the kind of risks
excepted in the foregoing article.

ARTICLE 733. Should it not have been stated in the contract for what period the lender runs the risk, the said risk shall
last with regard to the vessel, engines, rigging, and equipment from the moment said vessel puts to sea until she drops
anchor in the port of destination, and with regard to the merchandise, from the time it is loaded on the shore or wharf of
the port of shipment until unloaded in the port of consignment.
ARTICLE 734. In case of shipwreck the amount liable for the return of the loan shall be reduced to the proceeds of the
goods saved, after the costs of the salvage have been deducted.

If the loan were on the vessel or any of her parts, the freightage earned during the voyage for which said loan was
contracted shall also be liable for its payment, as far as it is available.

ARTICLE 735. 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 shall be divided, in case of shipwreck, between the lender and the underwriter,
in proportion to the legitimate interest of each one, taking into consideration, for this purpose only, the principal with
relation to the loan, and without prejudice to the right of preference of other creditors in accordance with Article 580.

ARTICLE 736. If there should be delay in the repayment of the principal or premiums of the loan, the former only shall
bear legal interest.