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CHAPTER 8: SHIP MORTGAGE AND MARITIME LIENS

1. What laws and rules govern mortgage and encumbrance over vessels?

PD 1521, otherwise known as the Ship Mortgage Decree of 1978. The same law as well as Section 12 of Executive Order
No. 125 as amended is being implemented with respect to annotation/cancellation of mortgages and transfer of rights and
other encumbrances of vessels.

Articles 580 to 584 of the Code of Commerce are deemed modified and/or repealed not only by the Civil code but also by
special laws.

2. What is a maritime lien?

A maritime lien is a privileged claim on a vessel for some service rendered to it to facilitate its use in navigation. It is a
special property right in a ship given to a creditor by law as 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.

3. What is the nature and proceeding of a maritime lien?

It is a proceeding quasi in rem wherein the property alone is treated as responsible for the claim or obligation upon which the
proceedings are based.

4. What are preferred claims?

Section 17 of the Ship Mortgage Decree provides tat preferred mortgage lien should have priority over all claims against the
vessel, except the following claims in the order stated:
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.

The above-enumerated claims are maritime liens that attaches to the vessel. Notice of their existence is not necessary. These
liens do not arise from specific agreement.

5. What is an executory contract doctrine?

A lien does not attach for breach of an executory contract even though the contract is the type which normally gives rise to a
lien. Liability arises in admiralty for breach of contract but if the parties have performed his obligation, his remedy against
the other is only for breach in an action in personam.

6. When does maritime lien prescribe? Is it subject to laches?

Enforcement of maritime lien by special law prescribes in 10 years. Laches may also lie of there was unreasonable delay on
the part of claimant in asserting its rights.

7. What is a maritime lien for necessaries (superior to the preferred mortgages)?

Sec. 21, PD 1521: Any person furnishing repairs, supplies, towage, use of dry dock or marine railway, or other necessaries to
any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a person authorized by the owner,
shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall be necessary to allege or prove
that credit was given to the vessel.

8. What are the requirements for a maritime lien for necessaries which is enforceable by suit in rem?

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.

9. Who are presumed to have authority from the owner to procure repairs, supplies, towage, use of dry dock or
marine railway or other necessaries for the vessel?

a. The managing owner
b. Ship's husband
c. Master
d. Any person to whom the management of the vessel at the port of supply is emtrusted.

10. What is a maritime tort?

Maritime torts are defined as civil wrongs committed on navigable waters. As a general principle, any conduct which is
tortuous under general law and which is connected with the ship or its uses created a maritime lien. It includes collision
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claims and personal injury claims.

11. Are salvage liens given preference?

Yes because of the benefit conferred in preserving the value of the vessel and the cargo.

12. What happens if the proceeds of the sale should not be sufficient to pay all creditors?

The residue shall be divided among them pro rata. All credits not paid, whether fully of partially shall subsist as ordinary
credits enforceable by personal action against the debtor.

13. What are the tests to determine the presence of lien?

a. Single factor methodology - In a suit to establish and enforce a maritime lien for supplies furnished to a vessel in a foreign
port, whether such lien exists, or whether the court has or will exercise jurisdiction, depends on the law of the country where
the supplies were furnished, which must be pleases and proved.
b. Multiple-contact test - the following factors were considered: (i) the place of the wrongful act; (ii) law of the flag; (iii)
allegiance or domicile of the injured; (iv) allegiance of the defendant shipowner; (v) place of contract; (vi) inaccessibility of
foreign forum; (vii) law of the forum.

14. Who may constitute preferred ship mortgage?

Any citizen of the Philippines, or any association or corporation organized under the laws of the Philippines, at least 60% of
the capital of which is owned by citizens of the Philippines may freely constitute a mortgage or any other lien or
encumbrance on his or its vessels and its equipment with any bank or other financial institutions, domestic or foreign.

15. What must be the purpose of the loan for it to be considered a preferred mortgage?

The loan secured by the ship mortgage must be for the purpose of financing the construction, acquisition, purchase of vessels
or initial operation of vessels. The purpose is important in determining the presence of preference.

16. What are the requirements for it to be considered a preferred mortgage?

a. The 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; and
c. The mortgage does not stipulate that the mortgagee waives the preferred status thereof.

17. What happens of it is a mortgage with non-marine property?

In the case of a mortgage which includes property other than a vessel, the mortgage shall not be held a preferred mortgage
unless the mortgage provides for the separate discharge of such property by the payment of a specified portion of the
mortgage indebtedness. The property whose separate discharge must be provided for is the non-maritime property.

18. What is a fleet mortgage?

It is mortgage on two or more vessels. The mortgage may provide for separate discharge of each vessel by the payment of a
portion of mortgage indebtedness. In case such mortgage does not provide for the separate discharge of a vessel, the
mortgage may nonetheless be a preferred mortgage.

19. May the preferred ship mortgaged be foreclosed?

Upon default of the obligor, the preferred ship mortgaged may be foreclosed in a suit in admiralty. Upon filing of a petition
for foreclosure, the Court may order the arrest of the vessel upon ex-parte application duly supported by an affidavit of a
person who knows the facts and upon the filing of a bond.

Foreclosure is only an alternative remedy. The mortgage may likewise avail of the alternative remedy of specific
performance in a suit in personam in admiralty.