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

Chapter 14

Charter Parties

*Carta Partita- divided document

Charter Party

- a contract whereby an entire ship, or some principal part thereof is let by the owner to a merchant or other person for a specified time or use for the conveyance of goods, in consideration of the payment of freight; merchant lease; may involve transportation of persons from one port to another

Kinds of Charter Parties:

1. Bareboat or Demise Charter

- shipowner leases to the charterer the whole vessel, transferring to the latter the entire command, possession and consequent control over the vessel’s navigation

- charterer takes over the ship, lock, stock, and barrel, thus becomes owner pro hac vice of the vessel, subject to any liability for damages arising from negligence

- charterer assumes to a large extent, the customary rights and liabilities of the shipowner in relation to third persons who may have dealt with him or with the vessel; liable for the expenses of the voyage including the wages of the seamen

2. Contract of Affreightment

a. Time Charter- the vessel is leased for a fixed period of time

b. Voyage charter- the vessel is leased for a single or particular voyage

- charterer hires the vessel only, for a determinate period of time or for a single or consecutive voyage

- shipowner provides for the provisions of the ship, wages of master and crew, and expenses in maintaining the vessel

Effect of Charter on Character of the Carrier

- Generally, the character of the common carrier is not affected by the charter party if the same is a contract of affreightment

Persons who make the Charter:

1. Charterer- one who charters the vessel; may enter into subcharter wherein the entire vessel is let to a third person but only in the event that there is no prohibition in the original charter regarding any subcharter

*subcharter-  an independent contract by itself involving only the charterer and the subcharterer and therefore does not give rise to any contractual relation between the general owner and the subcharterer

2. Part Owners- those persons who are considered owners of the vessel to a certain part only; may charter the same for their own commercial purposes and enjoys preference in the charter of the vessel over the persons who offer equal conditions and freight

3. Ship Agent- not allowed to make contracts for a new charter unless properly or duly authorized by the owner, or by virtue of an authority given by a resolution of the majority of the co-owners, or if the same has been extended to him in his certificate of appointment

4. Captain or Master- may enter into valid and binding charter parties as an inherent power, but only in the event of absence of a ship agent or consignee, and only if he acts in accordance with the instructions of the agent or owner to protect the latter’s interests

*validity of the charter is not affected by the circumstance of the captain or master as when he violated the said instructions; right of action to recover damages against the erring captain or master rests on the owner or agent

Requisites of a Valid Charter Party:

1. Consent of the contracting parties

2. An existing vessel which should be placed at the disposition of the shipper

3. Freight

4. Compliance with the formal requirements prescribed under Art 652 of the Code of Commerce

5. Any other stipulations not contrary to law

Formal Requirements under Art 652 of the Code of Commerce:

1. In writing; drawn in duplicate; signed by the parties- two witnesses if cannot sign

2. Kind, name, tonnage of the vessel

3. Flag and port of entry of the vessel

4. Full name and domicile of the captain

5. Full name and domicile of the ship owner or agent

6. Full name and domicile of the charterer

7. Capacity, number of tons or weight that charter party bind themselves to load or transport

8. Port of loading and unloading

9. Freight to be paid

10. Amount of primage to be paid to the captain

11. Days agreed upon for loading and unloading

12. Lay days and extra law days to be allowed and demurrage for each of them to be paid

Primage- payment for the use of the equipment belonging to the captain

Freight- compensation to be paid for the utilization of the vessel

Accrual of freightage- shall accrue according to the stipulation in the contract

*if there is no such stipulation, consider:

1. the freight shall begin to run from the day of loading on the vessel

2. in charters with a fixed period, the freight shall begin upon that very day

3. if freight is charged according to weight, the payment thereof shall be made according to the gross weight, including weight of containers

When Freightage is not due:

1. jettisoned goods considered general average loss

2. merchandise that are lost because of shipwreck or stranding

3. goods that are lost due to seizure by pirates or enemies

*if freight should have been paid in advance, then the same should be returned UNLESS there is an agreement to the contrary

When Payment is Not Excused

1. merchandise sold by the captain to pay for the necessary repairs to the hull, machinery or equipment

2. merchandise suffer deterioration or diminutions on account of inherent defects or bad quality and condition of the packing, or because of fortuitous event

3. natural increase in weight or size of the merchandise loaded on the vessel

Port of Unloading- port of destination where cargoes will be unloaded; charterer may be given the option of discharge at one or more ports within geographic range; under stipulation

Demurrage- a sum of money due by express contract for the detention of the vessel in loading or unloading, beyond the time allowed for that purpose in the charter party

Computation of Lay Days

-starts when vessel has arrived at usual or customary place for loading and unloading

-starts when the vessel is in actual readiness to discharge its cargo in accordance with its legal obligation

Deadfreight- when the charterer failed to occupy the leased portion of the vessel

Rights and Obligations of the Charter Parties

1. Shipowner or Captain

-evident failure or refusal to receive a cargo which had been contracted to be transported under the charter party

-observe the capacity of the vessel or that which has been expressly indicated in the registry

-any loss incurred by the shipper whose cargo is refused on account of the receipt by the shipowner of a greater amount of cargo belonging to other persons

-several charter parties, lack of space, not one would rescind the charter, preference shall be given who is first in loading his cargo; absence of priority, charterers may choose to load in proportion to the amounts of weight or space contracted

-may effect substitution of vessel if the substitute is duly inspected and seaworthy

-after three-fifths of the vessel, no substitution of chartered vessel with another one UNLESS he procures consent from the charterers or shipper

-if chartered in whole, cannot accept cargo from another person; UNLESS consent was obtained

-may also be generally held liable for damages incurred by the charterer due to voluntary delay of the captain

2. Charterer

-has the right to subcharter vessel to third person if authorized by shipowner

-liable to indemnify if he loads cargo different in kind from that contracted upon, which resulted to embargo, detention; without knowledge of shipowner

-jointly liable with shipowner for damages when illicit cargo is shipped

-may not abandon the goods damaged due to inherent defects or by reason of fortuitous event; except when cargo consisted of liquid which leaked leaving only ¼ of its content

Liability of the Charterer to Shipowner in Bareboat Charter

-private carriage; rights of the contracting parties are primarily defined and governed by the stipulation in their contract

Replacement of Vessel

-after receiving a part of the freight, not sufficient space to make up at least three-fifths of the amount which the vessel may hold

-substitution with the consent of the charterers or shippers

Effect of Bill of Lading

-may be used as proof of the receipt of the goods

-constitute a contract between vessel and consignee

-if negotiable document of title, binding in favor of a subsequent holder for value

-sole evident of title with respect to the cargo

Lien on the Cargoes

-freightage

-expenses and duties arising therefrom; must be reimbursed by the shipper

-part of the general average which may respond to it