Essentials of Transportation and Public Utilities Law by Justice Hernando and Aquino

Chapter 12

Ship Mortgage and Maritime Liens

Ship Mortgage Decree of 1978- enacted to accelerate the growth and development of the shipping industry and to extend the benefits accorded to overseas shipping under PD 214 to domestic shipping

Preferred Mortgage- constitute a lien upon the mortgaged vessel in the amount of the outstanding mortgage indebtedness secured by such vessel; upon default of any term or condition of the mortgage, such lien may be enforced by the mortgagee by suit in remaining admiralty wherein the vessel itself may be made a party defendant and be arrested in the manner as provided in Section 11 of the special law; preference is not absolute because there are other claims that prevail over ship mortgage

Requirements for preferred mortgage:

a. the mortgage is recorded as provided in Section 3 of PD 1521

b. an affidavit is filed with the record of such mortgage to the effect that the mortgage is made in good faith and without any design to hinder, delay, or defraud any existing or future creditor of the mortgagor or any lien or of the mortgaged vessel

c. the mortgage does not stipulate that the mortgage waives the preferred status thereof

d. mortgage should cover the whole of the vessel

e. the vessel must be of domestic ownership

*affidavit of good faith- required for the preferred status of the mortgage is not peculiar to ship mortgage

Arrest of vessels- upon the filing of the petition for the judicial foreclosure of a Preferred Ship Mortgage, or immediately thereafter, the applicant may apply ex parte for an order for the arrest of the mortgaged vessel or vessels and the judge shall immediately issue the same, provided that it is made to appear by affidavit of the applicant, or of some other person who personally knows the facts that a default in the mortgage has occurred and that applicant files a bond executed to the adverse party in an amount to be fixed by the judge, not exceeding the applicant’s claim, conditioned that the latter will pay all costs which may be adjudged to the adverse party and all damages which he may sustain by reason of such arrest, if the court shall finally adjudge that the applicant was not entitled thereto

Maritime lien- a privileged claim on a vessel for some service rendered to it to facilitate its use in navigation; a special property right in a ship given to a creditor by law as a security for a debt or claim subsisting from the moment the debt arises with right to have the ship sold and debt paid out of the proceeds; in spite of the transfer of the ownership, the lien is not extinguished; inseparable from the vessel and until discharged, it follows the vessel; proceeding quasi in rem

Preferred claims should have priority over all claims against the vessel except:

a. expenses and fees allowed and costs taxed by the court and taxes due to the Government

b. crew’s wages

c. general average

d. salvage; including contract salvage

e. maritime liens arising prior in time to the recording of the preferred mortgage

f. damages arising out of tort

g. preferred mortgage registered prior in time

*above enumeration are maritime liens attached to the vessel; imposed even in the absence of specific contractual provision providing for a lien

*nature of the claims does not presuppose nor originate in possession

*general legislation must give way to the special legislation on the same subject , and generally so interpreted as to embrace only cases in which the special provisions are not applicable

*claim on the maritime lien is based on law, and not on any contract or agreement

Executory contract doctrine- a lien does not attach for breach of an executory even though the contract is the type which normally gives rise to the lien; liability arises in admiralty for the break of contract but if the parties have performed his obligation, his remedy against the other is only for breach in an action in personal

Waiver of lien may be applied to:

a. furnishers of repairs

b. supplies

c. towage

d. use of dry dock or marine railway

e. other necessaries

*enforcement of a maritime lien imposed by special law prescribes in ten years

Requirements for a maritime lien for necessaries:

a. the necessaries must have been furnished to and for the benefit of the vessel

b. the necessaries must have been necessary for the continuation of the voyage of the vessel

c. the credit must have been extended to the vessel

d. there must be necessity for the extension of the credit

e. the necessaries must be ordered by persons authorized to contract on behalf of the vessel

Persons presumed to have authority from the owner to procure repairs, supplies, towage, etc:

a. managing owner

b. ship’s husband

c. master

d. any person to whom the management of the vessel at the port of supply is entrusted

Maritime tort- a civil wrong committed on navigable waters; any conduct which is tortuous under general law and which is connected with the ship or its uses creates a maritime lien; includes collision claims and personal injury claims

Salvage lien- given preference because of the benefit conferred in preserving the value of the vessel and the cargo

Subrogation- a third person who satisfies the obligation to an original maritime lienor may claim for the debtor because the third person is subrogated to the rights of the maritime lienor over the vessel

Tests to determine the presence of lien:

a. law of the country where the supplies were furnished

b. place of the wrongful act; law of the flag; allegiance or domicile of the injured; allegiance of the defendant shipowner; place of contract; inaccessibility of foreign forum; and law of the forum

c. the place of contracting; the place of negotiation of the contract; place of performance; location of the subject matter of the contract; the domicile, residence, nationality, place of incorporation and place of business of the parties

Constituents of preferred ship mortgage:

a. any citizen of the Philippines

b. association or corporation organized under the Philippine laws with 60% capital ownership of Filipino

Purpose of ship mortgage- financing the construction, acquisition, purchase of vessels or initial operation of the vessels

Formal requirements of ship mortgage:

a. mortgage is recorded

b. an affidavit is filed with the record of such mortgage to the effect that the mortgage is made in good faith and without any design to hinder, delay, or defraud any existing or future creditor of the mortgagor or any lien or of the mortgaged vessel

c. the mortgage does not stipulate that the mortgagee waives the preferred status thereof

MARINA Rules- Maritime Industry Authority; administers the annotation and/or cancellation of any mortgage over the vessels

Mortgage of vessel with non-maritime property- in order to be a preferred mortgage, it shall provide for the separate discharge of such property by the payment of a specified portion of the mortgage indebtedness

Fleet mortgage- mortgage on two or more vessels; it may provide for a separate discharge of each vessel by the payment of a portion of mortgage indebtedness