Loans on Bottomry and Respondentia

Group Members:

Rolan Jeff A. Lancion

Arvin Tan

Leo Menguito

Edwin Canonizado

Ninna Beatrice Flores

Candra Corbilla

Definition and Concept

- It is a contract whereby the owner of a ship borrows for the use, equipment or repair of
the vessel, for a definite period of term and pledges the ship as security with the
stipulation that if the ship is lost during the voyage or limited time on account of the
perils enumerated, the lender shall lose his money.
- The goods or some part thereof are hypothecated as security for a loan, the repayment
of which is dependent upon maritime risks, what ensues is a loan on respondentia.
- It is the borrowers personal responsibility which is deemed to be the principal security
for the performance of the contract.
- There must be a marine risk upon which the loan is predicated such that if the vessel or
the cargo is lost by virtue of that risk, the lender loses the capital or money lent.

Loan on Bottomry and Respondentia vs Simple Loan

Loan on Bottomry and Respondentia Simple Loan

The rate of interest is not the subject to the
Usury Law on account of the extraordinary risk
involved.
There must necessarily be a marine risk the
existence of which must be duly established
It must be executed in accordance with form
and manner required under the Code of
Commerce.
It must be recorded in the registry of vessels in
order to bind third persons
Preference is extended to the last lender if
there be several lenders
The rate of interest must not exceed the
ceiling fixed by the Usury Law.
Need not be such risk involved.
The formal requisites regarding contracts in
general would apply.
Registration is not required
The first lenders enjoys preference over
subsequent ones.
Application of Simple Loan

- If the lender should prove that he loaned an amount which is larger than the value of
the object liable for the bottomry loan due to fraudulent means employed by the
borrower, the loan shall be valid only for the amount at which the object is appraised by
experts, and the surplus principal shall be repairs as if it were a simple loan, with legal
interest thereon.
- The full amount of the loan which is contracted in order to load the vessel is not used
for the cargo or given on the goods if all of them could not have been loaded, the
balance will be considered as a simple loan which should be returned prior to the
commencement of the voyage.

Authority to Constitute Loan on Bottomry

- The shipowner may secure a loan on bottomry upon his ship, although in the case
where he is only a part owner, any bottomry that he may contract shall be limited only
to the extent of his interest in the vessel.

Authority to Constitute Loan on Respondentia

- The cargo owner shall have the right to enter into a loan on respondentia and if he does
so, such a loan would be void and the principal interest, and costs of the contract shall
be chargeable to this private account.

Form of the Loans

- Prescribed under Art. 720 of the Code of Commerce

o By means of public instrument
o By means of a policy signed by the contracting parties and the broker taking part
therein.
o By means of a private instrument
- The contract must contain a statement of the kind, name and registry of the vessel,
name/surname of the person giving and the person receiving the loan, the amount of
the loan and the premium stipulated, time for repayment, the objects pledged to secure
payment and voyage during which the risk is to run.

Consequence of Loss of Effects of the Loans

- The lender retains such right of action if the loss was 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 was caused by damages suffered by the vessel as a consequence of
being engaged in the contraband or if it arose from loaded the goods on a vessel
different from that designated in the contract.
- The lenders on bottomry or respondentia shall suffer interest, the general average
which makes take place in the things upon which the loans were made.
- If what transpires is a shipwreck, the amount for the payment of the loan shall be
reduced to the proceeds of the effects which have been saved but only after deducting
the cost of the salvage.

Preference

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