SPECIAL CONTRACTS OF MARITIME COMMERCE

1. Charter Parties

a. Definition; as common carrier

A charter party is a contract by virtue of which the owner or agent of a vessel binds himself to transport merchandise or persons for a fixed price. It is a contract by which the owner or agent of the vessel leases for a certain price the whole or a portion of the vessel for the transportation of goods or persons from one port to another. Towage is not a charter party; instead it is a contract for the hire of services by virtue of which a vessel is engaged to tow another vessel from one port to another for a consideration

Case 1: Planters Products vs CA G.R. 101503 (Sept. 15, 1993)

F: Planters purchased urea fertilizer from Mitsubishi,New York. The fertilizer was shipped on MV Sun Plum, which is owned by KKKK, from Alaska to San Fernando, La Union. A time charter party was entered into between Mitsubishi as shipper/charterer and KKKK as shipowner. Upon arrival in the port, PPI unloaded the cargo. It took PPI 11 days to unload the cargo. PPI hired a marine and cargo surveyor to determine if there was any shortage. A shortage and contamination of the fertilizer was discovered. PPI sent a claim letter to SSA, the resident agent of KKKK for the amount of the loss. An action for damages was filed. SSA contended that the provisions on CC do not apply to them because they have become private carriers by reason of the charter-party. The TC awarded damages. The CA reversed.

Issue : Does a charter party between a shipowner and a charterer transform a CC into a private one as to negate the civil law presumption of negligence in case of loss or damage to its cargo? NO.

Held : 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. There are 2 kinds : (1) contract of affreightment which involves the use of shipping space or vessels leased by the owner in part or as a whole, to carry goods for others; and (2) charter by demise or bareboat charter where the whole vessel is let to the charterer with a transfer to him of its entire command and possession and consequent control over its navigation, including the master and the crew, who are his servants. It is not disputed that the carrier operates as a CC in the ordinary course of business. When PPI chartered the vessel, the ship captain, its officers and crew were under the employ of the shipowner and therefore continued to be under its direct supervision and control. Thus it continued to be a public carrier. It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel, provided the charter is limited to the ship only, as in the case of a time- charter or a voyage-charter. It is only when the charter includes both the vessel and the crew, as in a bareboat or demise that a CC becomes private, insofar as such particular voyage is concerned.

Issue : WON the carrier is liable for damages. NO.

Held : The presumption of negligence on the part of respondent carrier has been overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of the cargo. On the

other hand, no proof was adduced by the petitioner showing that the carrier was remiss in the exercise of due diligence in order to minimize the loss or damage to the goods it carried.

b. Kinds

Classes of charter party:

(1) as to extent of vessel hired (a) total (b) partial - the charterer does not as a rule acquire the right to fix the date when the vessel should depart, unless such right is expressly granted in the contract

(2) as to time (a) until a fixed day or for a determined number of days or month (b) for a voyage

(3) as to freightage (a) for a fixed amount for the whole cargo (b) for a fixed rate per ton (c) for so much per month

Additional: Maritime Agencies vs CA 187 SCRA 346

F: Transcontinental Fertilizer Co. of London chartered from Hongkong Island Shipping Co. the motor vessel Hongkong Island for the shipment of bagged urea from Odessa, USSR to the Philippines. The parties signed a Uniform General Charter dated August 1979. The consignee was Atlas Fertilizer Co. while the insurer was the Union Insurance Society of Canton. Maritime Agencies was appointed as the charterer's agent and Macondray as the owner's agent. The vessel arrived in Manila to unload part of its cargo and then proceeded to Cebu to discharge the rest of the cargo. The consignee filed a formal claim for shortlanded bags. The consignee also filed a claim against Viva Customs Brokerage for the unrecovered spillage. These claims having been rejected, the consignee went to Union, which paid the total indemnity of P 113,123.86 pursuant to the insurance contract. As subrogee of the consignee, Union filed a claim for reimbursement against Hongkong Island Co., Maritime Agencies and/or Viva Customs Brokerage. Viva was dropped from the complaint while Macondray Co. was impleaded. The RTC found Hongkong Island liable for the shortlanded bags while Maritime Agencies was held liable for the spillage during discharge. The RTC ordered Hongkong Island and its local agent Macondray to pay P 87,000+ and Maritime Agencies to pay P 36,000+ to Union Insurance. CA exempted Hongkong Island and Macondray exempt from liability. Thus this petition. Maritime pleads non-liability on the ground that it was only the charterer's agent and should not answer for whatever responsibility might have attached to the principal. Union asked that Maritime should be made solidarily liable since its principal had not been impleaded.

Held : There are 3 general categories of charters:

1. Demise or bareboat charter - involves the transfer of full possession and control of the vessel for the period covered by the contract, the charterer obtaining the right to use the vessel and carry whatever cargo it chooses, while manning and supplying the ship as well

2. Time Charter - contract to use a vessel for a particular period of time, the charterer obtaining the right to direct the movements of the vessel during the chartering period, although the owner retains possession and control

3. Voyage Charter - contract for the hire of a vessel for one or a series of voyages usually for the purpose of transporting goods for the charterer; the voyage charter is a contract of affreightment and is considered a private carriage - being a private carriage, the parties may freely contract respecting liability for damages to the goods and other matters; responsibility for the cargo loss falls on the one who agreed to perform the duty involved in accordance with the terms of the voyage charter

This case involves a voyage charter.In the present case, the charterer was responsible for loading, stowage and discharging at the ports visited, while the owner was responsible for the care of the cargo. Par. 2 of the Uniform General Charter provided that the owner shall be responsible for loss or damage or delay in the delivery of goods caused by improper or negligent stowage of the goods or by personal want of due diligence in making the vessel seaworthy and properly manned. However, the owner shall not be liable for any other cause, even from the neglect of the captain or the crew or any other person employed by the owner on board, or for any unseaworthiness of the vessel on loading or commencement of the voyage. In cases at bar, the TC found that there were shortlanded bags, which could only mean that they were damaged or lost on board the vessel before unloading of the shipment. The entire cargo was covered by a clean B/L. As the bags were in good order when received by the vessel, the presumption is that they were damaged or lost during the voyage as a result of their negligent improper storage. The shipowner should be held liable. The filing of the claim must be within one year, in accordance with the COGSA. Otherwise, the carrier and the ship shall be discharged from liability. The one year period should commence from Oct. 20, 1979, the date when the last item was delivered to the consignee. Union filed the complaint against Hongkong within the one year period but tardily against Macondray. The action has prescribed with respect Macondray but not against the principal, Hongkong Island. As regards the goods damaged or lost during unloading, the charterer is liable thereof, having assumed this activity under the charter party free of expense to the vessel. The difficulty is that Transcontinental has not been impleaded and so is beyond the court's jurisdiction. The liability imposed on it cannot be borne by Maritime which is a mere agent and is not answerable for the injury caused by its principal (unless the principal is undisclosed). In this case, the charterer did not represent itself as a carrier and indeed assumed responsibility only for the unloading of the cargo. Maritime acted in representation of the charterer and not of the vessel. As a mere charterer's agent, it cannot be held solidarily liable with Transcontinental for the losses/damages to the cargo outside the custody of the vessel. Transcontinental was disclosed as the charterer's principal and Maritime only acted within the scope of its authority. The TC's findings were upheld except for some modifications. The liability of Macondray can no longer be enforced because of prescription. Maritima cannot be held liable for the principal's acts.

Case 2: Tabacalera Insurance vs. North Front Shipping

Facts:

Sacks of grains were loaded on board a vessel owned by North Front Shipping (common carrier); the consignee: Republic Floor Mills. The vessel was inspected by representatives of the shipper prior to the transport and was found fitting to carry the cargo; it was also issued a Permit to Sail. The goods were successfully delivered but it was not immediately unloaded by the consignee. There were a shortage of 23.666 metric tons and some of the merchandise was already moldy and deteriorating. Hence, the consignee rejected all the cargo and demanded payment of damages from the common carrier. Upon

refusal, the insurance companies (petitioners) were obliged to pay. Petitioners now allege that there was negligence on the part of the carrier. The trial court ruled that only ordinary diligence was required since the charter-party agreement converted North Front Shipping into a private carrier.

Issues:

WON North Front Shipping is a common carrier. If indeed, did it fail to exercise the required diligence and thus should be held liable?

Held:

North Front Shipping is a common carrier. Thus, it has the burden of proving that it observed extraordinary diligence in order to avoid responsibility for the lost cargo.

The charter-party agreement between North Front Shipping Services, Inc., and Republic Flour Mills Corporation did not in any way convert the common carrier into a private carrier. A “charter-party” is defined as 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 usex x x

Having been in the service since 1968, the master of the vessel would have known at the outset that corn grains that were farm wet and not properly dried would eventually deteriorate when stored in sealed and hot compartments as in hatches of a ship. Equipped with this knowledge, the master of the vessel and his crew should have undertaken precautionary measures to avoid or lessen the cargo’s possible deterioration as they were presumed knowledgeable about the nature of such cargo. But none of such measures was taken.

It did not even endeavor to establish that the loss, destruction or deterioration of the goods was due to the following: (a) flood, storm, earthquake, lightning, or other natural disaster or calamity; (b) act of the public enemy in war, whether international or civil; © act or omission of the shipper or owner of the goods; (d) the character of the goods or defects in the packing or in the containers; (e) order or act of competent public authority. This is a closed list. If the cause of destruction, loss or deterioration is other than the enumerated circumstances, then the carrier is rightly liable therefor.

However, the destruction, loss or deterioration of the cargo cannot be attributed solely to the carrier. The consignee Republic Flour Mills Corporation is guilty of contributory negligence. It was seasonably notified of the arrival of the barge but did not immediately start the unloading operations.

Case 3: LEA MER INDUSTRIES, INC vs. MALAYAN INSURANCE CO., INC.Facts:

Vulcan Industrial and Mining Corporation ordered 900 metric tons of silica sand valued at P565,000 from Ilian Silica Mining.

Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the shipment of the said order. The cargo was to be transported from Palawan to Manila.

On October 25, 1991, the silica sand was placed on board Judy VII, a barge leased by Lea Mer. During the voyage, the vessel sank, resulting in the loss of the cargo.

Malayan Insurance Co., Inc., as insurer, paid Vulcan t P565,000, the value of the lost cargo. To recover the amount paid and in the exercise of its right of subrogation, Malayan demanded reimbursement from Lea Mer, which refused to comply.

Thus, Malayan sued Lea Mer for the collection of money. However, the RTC dismissed the Complaint, upon finding that the cause of the loss was a fortuitous event. It ruled that the vessel had sunk because of the bad weather condition brought about by Typhoon Trining and that petitioner had no knowledge of the incoming typhoon, and that the vessel had been cleared by the Philippine Coast Guard to travel from Palawan to Manila.

But CA held that the vessel was not seaworthy when it sailed for Manila. Thus, the loss of the cargo was occasioned by petitioner's fault, not by a fortuitous event.

Thus, Lea Mer filed a petition for review on CA’s decision.

Issue: WON Lea Mer is liable to pay Malayan Insurer for lost cargo.

Held: YES.

Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods, or both -- by land, water, or air -- when this service is offered to the public for compensation. Petitioner is clearly a common carrier, because it offers to the public its business of transporting goods through its vessels.

The Contract in this case was one of affreightment because it was petitioner's crew that manned the tugboat M/V Ayalit and controlled the barge Judy VII. Necessarily, petitioner was a common carrier, and the pertinent law governs the present factual circumstances.

Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and the safety of the passengers they transport, as required by the nature of their business and for reasons of public policy.

Common carriers are presumed to have been at fault or to have acted negligently for loss or damage to the goods that they have transported. This presumption can be rebutted only by proof that they observed extraordinary diligence, or that the loss or damage was occasioned by any of the following causes. (pls. check what provision ni..)

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;(2) Act of the public enemy in war, whether international or civil;(3) Act or omission of the shipper or owner of the goods;(4) The character of the goods or defects in the packing or in the containers;(5) Order or act of competent public authority.

To excuse the common carrier fully of any liability, the fortuitous event must have been the PROXIMATE and ONLY cause of the loss. Moreover, it should have exercised due diligence to prevent or minimize the loss before, during and after the occurrence of the fortuitous event.

As a common carrier, petitioner bore the burden of proving that it had exercised extraordinary diligence to avoid the loss, or that the loss had been occasioned by a fortuitous event -- an exempting circumstance.

The evidence of fortuitous event presented by petitioner was insufficient. It was not enough for the common carrier to show that there was an unforeseen or unexpected occurrence. It had to show that it was free from any fault -- a fact it miserably failed to prove.

It did not present evidence that it had attempted to minimize or prevent the loss before, during or after the alleged fortuitous event.

Also, the alleged fortuitous event was not the sole and proximate cause of the loss. There is a preponderance of evidence that the barge was not seaworthy when it sailed for Manila. In the hull of the barge, there were holes that might have caused or aggravated the sinking.

Additional Important discussions from the case:

1. Charter parties are classified as contracts of demise (or bareboat) and affreightment, which are distinguished as follows:

Under the demise or bareboat charter of the vessel, the charterer will generally be 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, command and navigation thereof to the charterer; anything short of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all.

The distinction is significant, because a demise or bareboat charter indicates a business undertaking that is private in character. Consequently, the rights and obligations of the parties to a contract of private carriage are governed principally by their stipulations, not by the law on common carriers.

2. Article 1174 of the Civil Code provides that 'no person shall be responsible for a fortuitous event which could not be foreseen, or which, though foreseen, was inevitable. Thus, if the loss or damage was due to such an event, a common carrier is exempted from liability.

Jurisprudence defines the elements of a 'fortuitous event as follows: (a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtors to comply with their obligations, must have been independent of human will; (b) the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been such as to render it impossible for the debtors to fulfill their obligation in a normal manner; and (d) the obligor must have been free from any participation in the aggravation of the resulting injury to the creditor.

2. Loans on bottomry and respondentia

a. Loan on Bottomry, defined

A contract in the nature of a mortgage, by which the owner of the ship borrows money for the use, equipment and repair of the vessel and for a definite term, and pledges the ship (or the keel or bottom of the ship) as a security for its repayment, with maritime or extraordinary interest on account of the maritime risks to be borne by the lender, it being stipulated that if the ship be lost in the course of the specific voyage or during the limited time, by any of the perils enumerated in the contract, the lender shall also lose his money.

b. Loan on Respondentia, defined

One made on the goods laden on board the ship, and which are to be sold or exchanged in the course of the voyage, the borrower's personal responsibility being deemed the principal security for the performance of the contract, which is therefore called respondentia. The lender must be paid his principal and interest, thought the ship perishes, provided that the goods are saved.

c. Character of Loan

Art. 719. A loan in which, under any condition whatever, the repayment of the sum loaned and of the premium stipulated depends upon the safe arrival in port of the goods on which it is made, or of the price they may receive in case of accident, shall be considered a loan on bottomry or respondentia.

Real, unilateral, aleatory contract:

1. delivery of the amount loaned is necessary for the perfection of the contract

2. although there are reciprocal benefits, the contract produces obligations only for one party, the borrower who must return the amount borrowed plus premium

3. lender really runs known risks

Distinguished from ordinary loans:

Ordinary loan vs loan on bottomry and respondentia

1. first lender has preference last lender has preference over over subsequent lenders previous ones

2. must be paid absolutely loan is required to be paid only upon at all events, WON thing safe arrival of the thing given as given as security is lost or security at port of destination destroyed

3. subject to Usury Law no limit as to rate of interest in view of diff. classes and various risks in a maritime voyage

Marine insurance vs Bottomry and Respondentia Loans:

The borrower is in effect indemnified for his loss, at least, to the extent of the loan --> in case of loss of the thing given as security, the borrower is under no obligation to pay the loan

Marine insurance vs bottomry/respondentia loans

1. indemnity is paid after the indemnity is paid in advance by way of loan loss has occurred

2. when marine peril occurs, when marine peril causes the loss of the the obligation of the insurer vessel or cargo, the obligation of the becomes absolute borrower to pay is extinguished

3. consensual contract real contract --perfected from the * governed by Insurance Act moment of delivery of the thing loaned

When loss does not extinguish loan: (Art. 731)

1. where the loss is caused by inherent defect of the thing

2. where the loss is caused by fault or malice of borrower

3. where loss is caused by barratry on the part of the captain

4. where loss is caused by damage to the vessel as a consequence of its engaging in contraband

5. where loss arose from having loaded the merchandise on a vessel different from that designated in the contract, except if change is due to force majeure

d. Forms and Requisites

Art. 720. Loans on bottomry or respondentia may be executed:

1. By means of a public instrument.

2. By means of a policy signed by the contracting parties and the broker taking 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 registry of vessels, without which requisites the credits of this kind 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.

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 registry of vessels of the port of registry of the vessel before the lapse of eight days following its arrival. If said eight days should elapse without the record having been made in the registry of vessels, the contracts made during the voyage of a vessel shall produce no effect with regard to third persons, except from the day and date of their inscription.

In order that the policy of the contracts executed in accordance with No.2 may have binding force, they must conform to the registry of the broker who took part therein. With respect to those executed in accordance with No. 3 the acknowledgment of the signature shall be required. Contracts which are not reduced in writing shall not give rise to judicial action.

Effect of registration:

1. the loan shall have, with regard to other credits, the preference which, according to its nature, it should have (Art. 580 - 8th in the order of preference)

2. effective against third persons from the time of execution/registration

Art. 721. In a contract on bottomry or respondentia the following 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 domiciles of the person giving and the person receiving the loan.

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

5. The time for repayment.

6. The goods pledged to secure repayment.

7. The voyage during which the risk is run.

Art. 722. The contracts may be made to order, in which case they shall be transferable by indorsement, and the indorsee shall acquire all the rights and shall incur all the risks corresponding to the indorser.

e. On What Constituted

Art. 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 merchandise loaded. If the loan is constituted on the hull of the vessel, the rigging, equipment and other goods, provisions, fuel, steam engines, and the freightage earned during the voyage on which the loan is made, shall also be considered as included in the liability for the loan.

If the loan is made on the cargo, all that which constitutes the same shall be subject to the repayment; and if on a particular object of the vessel or of the cargo, only the object con- cretely and specifically mentioned shall be liable.

Art. 725. No loans on bottomry may be made on the salaries of the crew or on the profits expected.

f. Amount

Art. 723. Loans may be made in goods and in merchandise, fixing their value in order to determine the principal of the loan.

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

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

The excess shall be valid only as an ordinary loan

g. By whom

Art. 728. The loan which the captain takes at the point of residence of the owners of the vessel shall only affect that part thereof which belongs to the captain, if the other owners or their agents should not have given their express authorization therefor 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 they 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.

h. Effects of Contract

Art. 719

Art. 729. Should the goods on which money is taken not be subjected to risk, the contract shall be considered a simple loan, with the obligation on the part of the borrower to return the principal and interest at the legal rate, if that agreed upon should not be lower.

Art. 726

Art. 727.

Art. 730. Loans made during the voyage shall have preference over those made before the clearing of the vessel, and they shall be graduated in the inverse order of their dates. The loans for the last voyage shall have preference over prior ones. Should several loans have been made at the same port of arrival under stress and for the same purpose, all of them shall be paid pro rata.

i. Liability

ARTICLE 731. The actions pertaining to the lender shall be extinguished by the absolute loss of the goods on which the loan was made, if it arose from an accident of the sea at the time and during the voyage designated in the contract, and it is proven that the cargo was on board; but this shall not take place if the loss was caused by the inherent defect of the thing, or through the fault or malice, of the borrower, or barratry on the part of the captain, or if it was caused by damages suffered by the vessel as a consequence of being engaged in contraband, or if it arose from having loaded the merchandise on a vessel different from that designated in the contract, unless this change should have been made by reason of force majeure. Proof of the loss as well as of the existence in the vessel of the goods declared to the lender as the object of the loan is incumbent upon him who received the loan.

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 is 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 the period during which the lender shall run the risk not have been stated in the contract, it 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 they are loaded at the shore or wharf of the port of shipment until they are unloaded in the port of consignment.

ARTICLE 734. 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.

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 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.

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