Section II

Loans on Bottomry and Respondentia

Article 719
A loan on bottomry or respondentia shall be considered that which the repayment of the sum loaned
and the premium stipulated, under any condition whatsoever, depends on the safe arrival in port of
the goods on which it is made, or of their value in case of accident.
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.
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.
Article 722
The bonds may be issued to order, in which case they shall be transferable by indorsement, and the
assignee shall acquire all the rights and run all the risks corresponding to the indorser.
Article 723
Loans may be made in goods and in merchandise, their value being fixed in order to determine the
amount of the loan.
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 725
No loans can be made on the salaries of the crew, nor on the profits which it is expected to earn.
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 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 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.
Article 730
Loans made during the voyage shall have preference over those made before the clearing of the vessel,
and they shall be graduated by the inverse order to that of their dates.
The loans for the last voyage shall have preference over prior ones.
Should several loans have been made at a port made under stress and for the same purpose, all of
them shall be paid pro rata.
Article 731
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;
but this shall not take place if the loss were 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 were caused by
damages suffered by the vessel as a consequence of being engaged in contraband, or 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 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.
 Title IV
Risks, Damages and Accidents of Maritime Commerce
Section I
Averages
Article 806
For the purposes of this Code the following shall be considered averages:
1. All extraordinary or accidental expenses which may be incurred during the navigation for the
preservation of the vessel or cargo, or both.
2. All damages or deterioration the vessel may suffer from the time she puts to sea from the port
of departure until she casts anchor in the port of destination, and those suffered by the
merchandise from the time it is loaded in the port of shipment until it is unloaded in the port
of consignment.
Article 807
The petty and ordinary expenses of navigation, such as pilotage of coasts and ports, lighterage and
towage, anchorage dues, inspection, health, quarantine, lazaretto, and other so-called port expenses,
costs of barges, and unloading, until the merchandise is placed on the wharf, and any other expenses
common to navigation shall be considered ordinary expenses to be defrayed by the shipowner, unless
there is a special agreement to the contrary.
Article 808
Averages shall be:
1. Simple or particular.
2. General or gross.
Article 809
Simple or particular averages shall be, as a general rule, all the expenses and damages caused to the
vessel or to her cargo which have not redounded to the benefit and common profit of all the persons
interested in the vessel and her cargo, and especially the following:
1. The damages suffered by the cargo from the time of its embarkation until it is unloaded, either
on account of the nature of the goods or by reason of an accident at sea or force majeure, and
the expenses incurred to avoid and repair the same.
2. The damages suffered by the vessel in her hull, rigging, arms, and equipment, for the same
causes and reasons, from the time she puts to sea from the port of departure until she
anchored in the port of destination.
3. The damages suffered by the merchandise loaded on deck, except in coastwise navigation, if
the marine ordinances allow it.
4. The wages and victuals of the crew when the vessel should be detained or embargoed by a
legitimate order or force majeure, if the charter should have been for a fixed sum for the
voyage.
5. The necessary expenses on arrival 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 cover any other requirement of the vessel
against which the proper amount shall be charged.
7. The victuals and wages of the crew during the time the vessel is in quarantine.
8. The damage suffered by the vessel or cargo by reason of an impact or collision with another,
if it were accidental and unavoidable. If the accident should occur through the fault or
negligence of the captain, the latter shall be liable for all the damage caused.
9. Any damage suffered by the cargo through the faults, 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 freight.
Article 810
The owner of the goods which gave rise to the expense or suffered the damage shall bear the simple
or particular averages.
Article 811
General or gross averages shall be, as a general rule, all the damages and expenses which are
deliberately caused in order to save the vessel, her cargo, or both at the same time, from a real and
known risk, and particularly the following:
1. The goods or cash invested in the redemption of the vessel or cargo captured by enemies,
privateers, or pirates, and the provisions, wages, and expenses of the vessel detained during
the time the arrangement or redemption is taking place.
2. The goods jettisoned to lighten the vessel, whether they belong to the vessel, to the cargo, or
to the crew, and the damage suffered through said act by the goods kept.
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 her in condition to enter a port or roadstead, and the damage resulting therefrom
to the goods removed or transferred.
5. The damage suffered by the goods of the cargo through the opening made in the vessel in order
to drain her and prevent her sinking.
6. The expenses caused through floating a vessel intentionally stranded for the purpose of saving
her.
7. The damage caused to the vessel which it is necessary to break open, scuttle, or smash in order
to save the cargo.
8. The expenses of curing and maintaining 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 detained 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 and victuals of the crew of a vessel chartered by the month during the time it should
be embargoed or detained by force majeure or by order of the Government, or in order to
repair the damage caused for the common good.
11. The loss suffered in the value of the goods sold at arrivals under stress in order to repair the
vessel because of gross average.
12. The expenses of the liquidation of the average.
Article 812
In order to satisfy the amount of the gross or general averages, all the persons having an interest in
the vessel and cargo therein at the time of the occurrence of the average shall contribute.
Article 813
In order to incur the expenses and cause the damages corresponding to gross average, a previous
resolution of the captain, adopted after deliberation with the sailing mate and other officers of the
vessel, and with a hearing of the persons interested in the cargo who may be present, shall be
required.
If the latter shall object, and the captain and officers, or a majority, or the captain, if opposed to the
majority, should consider certain measures necessary, they may be executed under his liability,
without prejudice to the freighters exercising their rights against the captain before the judge or court
of competent jurisdiction, if they can prove that he acted with malice, lack of skill, or negligence.
If the persons interested in the cargo, being on the vessel, should not be heard, they shall not
contribute to the gross average, which contribution shall be paid by the captain, unless the urgency
of the case should be such that the time necessary for previous deliberation was lacking.
Article 814
The resolution adopted to cause the damages which constitute a general average must necessarily be
entered in the log book, stating the motives and reasons therefor, the votes against it, and the reasons
for the disagreement should there be any, and the irresistible and urgent causes which moved the
captain if he acted of his own accord.
In the first case the minutes shall be signed by all the persons present who could do so before taking
action if possible, and if not at the first opportunity; in the second case by the captain and by the
officers of the vessel.
In the minutes and after the resolution there shall be stated in detail all the goods cast away, 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 twenty-four hours after his arrival, and to ratify it immediately by an oath.
Article 815
The captain shall supervise 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 handling of the vessel or
damage her, preferring, if possible, the heaviest ones and those of least utility and value.
2. Those in the hold, always beginning with those of the greatest weight and smallest value, to
the amount and number absolutely indispensable.
Article 816
In order that the goods jettisoned may be included in the gross average and the owners thereof be
entitled to indemnity, it shall be necessary in so far as the cargo is concerned that their existence on
board be proven by means of the bill of lading; and with regard to those belonging to the vessel, by
means of the inventory made up before the departure, in accordance with the first paragraph of
Article 612.
Article 817
If in lightening a vessel on account of a storm, in order to facilitate her entry into a port or roadstead,
part of her cargo should be transferred to lighters or barges and be lost, the owner of said part shall
be entitled to indemnity, as if the loss has originated from a gross average, the amount thereof being
distributed between the entire vessel and cargo which caused the same.
If, on the contrary, the merchandise transferred should be saved and the vessel should be lost, no
liability can be demanded of the salvage.
Article 818
If, as a necessary measure to extinguish a fire in a port; roadstead; creek, or bay, it should be decided
to sink any vessel, this loss shall be considered gross average, to which the vessels saved shall
contribute.
(FROM UP TRANSPO REVIEWER)

Coastwise Lighterage Corp vs. CA and Phil. Gen. Insurance Co. (1995)

The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of Appeals:

Under the demise or bareboat charter of the vessel, the charterer will generally be regarded as the owner
for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes 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.

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 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.

Although a charter party may transform a common carrier into a private one, the same however is not
true in a contract of affreightment on account of the aforementioned distinctions between the two. Thus,
Coastwise, by the contract of affreightment, was not converted into a private carrier, but remained a
common carrier and was still liable as such.

Maritime Agencies vs CA 187 SCRA 346

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