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

Chapter 15

Loans on Bottomry and Respondentia

Bottomry- a contract whereby the owner of the ship borrows for the use, equipment, and repair of the vessel for a definite term, and pledges the ship as security

Respondentia- when goods are hypothecated as security for the loan, the payment of which is dependent upon maritime risks; usually in form of a bond

Distinguished from simple loan:

1. Rate of interest

-in bottomry or respondentia, it is not subject to Usury Law on account of the extraordinary risks

-in simple loan, it must not exceed the ceiling fixed by Usury Law

2. Marine risk

-bottomry or respondentia, existence of a marine risk must be duly established

-in simple loan, needless to have such risks involved

3. Execution of contract

-in bottomry or respondentia, executed in accordance with the form and manner required in the Code of Commerce

-in simple loan, formal requisites regarding contracts in general would apply

4. Record

-in bottomry or respondentia, loan must be recorded in the registry of vessels in order to bind third persons

-in simple loan, no need for such registration

5. Preference

-in bottomry or respondentia, preference is extended to the last lender

-in simple loan, the first lender enjoys the preference over subsequent ones

When Simple Loan Applies

1. lender proves that he owned an amount larger than the value of the object by means of fraud by the borrower

2. full amount of the loan which is contracted in order to load the vessel is not used for the cargo

Authority to Constitute Loan on Bottomry

1. shipowner

2. part owner: to the extent of their interest in the vessel

Authority to Constitute Loan on Respondentia

1. cargo owner

Form of the Loans:

a. by means of public instrument

b. by means of a policy signed by the contracting parties and the broker taking part therein: must conform to the registry of the broker

c. by means of a private instrument: acknowledgment of the signature is required

-entered in the certificate of registry

-recorded in the registry of vessels

Consequences on the Loss of Effects of the Loans:

1. Lenders shall suffer in proportion to their respective interest in case of general average

2. In case of shipwreck, the amount of the payment of the loan shall be reduced to the proceeds of the effects which may have been saved after deducting the costs of salvage

3. If same vessel is subject to loan on bottomry or respondentia and marine insurance, value of what may be saved is divided between lender and insurer

Preference- given to the loans for the last voyage on the theory that were it not for the last lender, prior lenders would not have benefited from the preservation of the security