PRIVATE AND CONFIDENTIAL

ATTORNEY-CLIENT
PRIVILEGE

Date: January 9, 2016

For: BRDY
Re: Rules on registration of mortgage for a foreign vessel with a bareboat
charter registered in the Philippines

This note discusses whether a foreign vessel with a registered bareboat charter in
the Philippines has to re-register a mortgage which has been assigned to another.

Currently, there appears to be no law expressly requiring re-registration of the

assignment of the mortgage over the foreign vessel.

Memorandum Circular (MC) No. 182, series of 2003, provides that any foreign-
owned ship bareboat chartered by a Philippine National may be entered under the
Philippine Register of Ships upon approval by the Administration.1 Upon approval of
the ships registration, among the post-approval documents required by the MARINA
to be submitted is an original copy of a document issued by the State of original
registry providing details of the ships name, ownership and registered mortgages.2

Given the requirements above, the mortgage of the foreign vessel is required to be
submitted at the time immediately following the approval of registration in the
Philippine Register of Ships. There is no express provision mandating the re-
registration of a mortgage.

On the other hand, the primary law governing mortgages over ships or vessels is
Presidential Decree (PD) No. 1521 or the Ship Mortgage Decree of 1978. Section 3
of the said law states, that no mortgage, which at the time such mortgage is made
includes a vessel of domestic ownership as this term is defined in PD No. 761, or any
portion thereof, as the whole or any part of the property mortgaged, shall be valid,
in respect to such vessel, against any person other than the mortgagor, his heir or
assign, and a person having actual notice thereof, until such mortgage is recorded in
the office of the Philippine Coast Guard of the port of documentation of such vessel.

Note that the requirement to register under PD No. 1521 applies only to vessels of
domestic ownership as defined in PD No. 761, which, in turn, defines the same as

1 IV(1).
2 VII(3)(f).
vessels whose ownership is vested in citizens of the Philippines or corporations
organized under Philippine law at least 60% of the capital stock of which is wholly
owned by citizens of the Philippines.3

Since the ship involved herein is a foreign ship merely bareboat chartered to a
Philippine national, there seems to be no requirement to re-register the mortgage
since it is also likely the mortgage shall be enforced outside the Philippines, effectively
negating the provision in PD No. 1521 which requires registration of a mortgage for
the same to be valid against third parties.

Ship Mortgage Decree of 1978

Section 3. Mortgage of Vessel of Domestic Ownership; records.

(a) No mortgage, which at the time such mortgage is made includes a vessel of domestic
ownership as this term is defined in Presidential Decree No. 761, or any portion thereof, as
the whole or any part of the property mortgaged, shall be valid, in respect to such vessel,
against any person other than the mortgagor, his heir or assign, and a person having actual
notice thereof, until such mortgage is recorded in the office of the Philippine Coast Guard of
the port of documentation of such vessel.

Section 15. Foreign Ship Mortgages As used in Sections 10 to 18 hereof, the term "preferred
mortgage" shall include, in addition to a preferred mortgage made pursuant to the provisions of this
Decree, any mortgage, hypothecation, or similar charge created as security upon any documented
foreign vessel if such mortgage, hypothecation, or similar charge has been duly and validly executed
in accordance with the laws of the foreign nation under the laws of which the vessel is documented
and has been duly registered in accordance with such laws in a public register either at the port of
registry of the vessel or at a central office; and the term "preferred mortgage lien" shall also include
the lien of such mortgage, hypothecation, or similar charge: Provided, however, That such "preferred
mortgage lien" in the case of a foreign vessel shall be subordinate to maritime liens for repairs,
supplies, towage, use of drydock or marine railway, or other necessaries, performed or supplied in
the Philippines.

3 Section 1.

2
MEMORANDUM CIRCULAR NO. 27-C

MC 100

14. REGISTER 14.1. Description if separate from vessels register Every mortgage of a ship which is
registered in the Philippines shall be registered in the Record of Transfer and Encumbrances of Ships.
However, no Philippine vessel shall be mortgaged to non-Filipinos or foreign corporations without
approval from MARINA and the Central Bank of the Philippines (section 19(d), PD 1521). In contrast,
mortgages to Philippine citizens or corporations need not have approval from MARINA or the Central
Bank of the Philippines.

The flexibility of the Philippine system of vessel registration was recently introduced by the Bareboat
Registry Scheme, which is more fully discussed infra. Under this scheme, a foreign-owned vessel
bareboat chartered to a Philippine company would be entitled to fly a Philippine flag temporarily,
coterminous with the existence of the bareboat charter, whose effectiveness has been extended
indefinitely unless otherwise revoked by the President of the Philippines (Executive Order (EO) No. 667,
11 October 2007).