5th Jun 2017

A_British_Man_of_War_before_the_Rock_of_Gibraltar_by_Thomas_Whitcombe

As a general rule, when ownership of personal property (chattel), like a car for example, is transferred to another under a clean title – meaning, that no mortgage is annotated in the car’s registration – the transfer of ownership is complete. The creditors of the original owner cannot run after the car because the personal property already belongs to another.

However, when a mortgage is recorded in the chattel registry, and the title to the vehicle bears the mortgage (or is otherwise annotated or stamped in the vehicle’s registration), the mortgage follows the vehicle wherever it goes. The car remains subject to the mortgage despite the transfer of ownership. This means that the vehicle may still be foreclosed, in case the debt for which the mortgage was constituted, will not be paid or the original owner or mortgagor will be in default of the mortgage. This rule generally applies to other types of vehicles, and other personal properties of value, such as shares of stock.

With respect to vessels and ships, the rule is different.

For example, if a person provides repairs, supplies or labor to a ship on credit of the vessel, and owner, master, captain or other authorized representative of the vessel accepts the service or goods, a maritime lien is constituted on the ship herself, and attaches to the ship or vessel wherever she goes. This lien attaches to the entire vessel – her hull, tackle, furniture, equipment, and apparel – even assuming that these are owned separately and individually by others, and without regard to their owner.

This lien remains even if the mortgage is not recorded or annotated in the ship’s registration. So long as the requirements of Philippine law to constitute a maritime lien are satisfactorily established by the person providing repairs, supplies or labor to the ship, the ship may be arrested, attached and later on sold to satisfy the indebtedness of the shipowner or captain to the former.

And even if the ship was already sold to a new owner who had no knowledge of the loan contracted over the vessel, the new owner cannot defeat the maritime lien citing want of knowledge.

 A maritime lien over ship or vessel exists and will continue to exist, be respected, and maybe enforced, even after the purchase of the vessel, and even in the absence of an actual mortgage agreement registered in the ship’s or vessel’s registration. This is the rule of maritime law that prevails in the Philippines.

 As early as the 1906 case of The Philippine Shipping Company, et al vs. Franciso Vergara, G.R. No. L-1600, 01 June 1906, the Supreme Court held that maritime law is different from the principles of civil law and even commercial law, as shown by the real and hypothecary nature of maritime law, such that a maritime creditor may for any reason attach the vessel herself to secure his claim without waiting for a settlement of his rights by a final judgment, even to the prejudice of a third person, to wit:

“That which distinguishes the maritime from the civil law and even from the mercantile law in general is the real and hypothecary nature of the former, and the many securities of a real nature that maritime customs from time immemorial, the laws, the codes, and the later jurisprudence, have provided for the protection of the various and conflicting interest which are ventured and risked in maritime expeditions, such as the interests of the vessel and of the agent, those of the owners of the cargo and consignees, those who salvage the ship, those who make loans upon the cargo, those of the sailors and members of the crew as to their wages, and those of a constructor as to repairs made to the vessel.

 Section 21 of Presidential Decree No. 1521 otherwise known as the Ship Mortgage Law of 1978 gives the definition of a maritime lien:

 “Maritime Lien for Necessaries; persons entitled to such lien.

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.”

 This is unlike the civil or commercial law rule that for a mortgage covering personal property to be constituted, the mortgage must be properly registered in the chattel mortgage registry and indicated in the registration papers of the chattel. This requirement is notice to the whole world that the chattel is being held as security for a loan, which the owner constituted over his or her personal property. If such mortgage is not duly registered, the mortgage will not any would-be purchaser of the chattel.

 As further discussed in the 1906 case of The Philippine Shipping Company, et al vs. Franciso Vergara:

“As evidence of this “real” nature of the maritime law we have (1) the limitation of the liability of the agents to the actual value of the vessel and the freight money, and (2) the right to retain the cargo and the embargo and detention of the vessel even cases where the ordinary civil law would not allow more than a personal action against the debtor or person liable. It will be observed that these rights are correlative, and naturally so, because if the agent can exempt himself from liability by abandoning the vessel and freight money, thus avoiding the possibility of risking his whole fortune in the business, it is also just that his maritime creditor may for any reason attach the vessel itself to secure his claim without waiting for a settlement of his rights by a final judgment, even to the prejudice of a third person.

 This repeals the civil law to such an extent that, in certain cases, where the mortgaged property is lost no personal action lies against the owner or agent of the vessel. For instance, where the vessel is lost the sailors and members of the crew cannot recover their wages; in case of collision, the liability of the agent is limited as aforesaid, and in case of shipwrecks, those who loan their money on the vessel and cargo lose all their rights and cannot claim reimbursement under the law.

 There are two reasons why it is impossible to do away with these privileges, to wit: (1) The risk to which the thing is exposed, and (2) the “real” nature of maritime law, exclusively “real,” according to which the liability of the parties is limited to a thing to which is at mercy of the waves. If the agent is only liable with the vessel and freight money and both may be lost through the accidents of navigation it is only just that the maritime creditor have some means of obviating this precarious nature of his rights by detaining the ship, his only security, before it is lost.

 The liens, tacit or legal, which may exist upon the vessel and which a purchaser of the same would be obliged to respect and recognize – in addition to those existing in favor of the State by virtue of the privileges which are granted to it by all the laws – pilot, tonnage, and port dues and other similar charges, the wages of the crew earned during the last voyage as provided in article 646, of the Code of Commerce, salvage dues under article 842, the indemnification due to the captain of the vessel in case his contract is terminated on account of the voluntary sale of the ship and the insolvency of the owner as provided in article 608, and other liabilities arising from collisions under” article 837 and 838. (Madariaga, pp. 60-62, 63, 85.)” [Emphasis and underscoring supplied.]

 To reiterate, liens, whether they be tacit or legal, may exist and a purchase is obligated to respect such lien because the lien, being a statutory lien, attaches to the vessel, by virtue of the law that declares the creation of the lien.

Even if the maritime lien is not registered in the ship’s registry, any purchaser or possessor of the vessel cannot plead lack of notice to defeat the maritime lien.

A more modern application of the principles governing maritime liens is found in the case of Poliand Industrial Limited, vs. National Development Company, et al., G.R. No. 143877, 22 August 2005. In the Poliand case, the Supreme Court ruled that a maritime lien, once it attaches, may still be enforced notwithstanding the subsequent transfer of the vessels, to wit:

 “All things considered, however, the Court finds that only NDC is liable for the payment of the maritime lien. A maritime lien is akin to a mortgage lien in that in spite of the transfer of ownership, the lien is not extinguished. The maritime lien is inseparable from the vessel and until discharged, it follows the vessel. Hence, the enforcement of a maritime lien is in the nature and character of a proceeding quasi in rem. The expression action in rem is, in its narrow application, used only with reference to certain proceedings in courts of admiralty wherein the property alone is treated as responsible for the claim or obligation upon which the proceedings are based. Considering that DBP subsequently transferred ownership of the vessels to NDC, the Court holds the latter liable on the maritime lien. Notwithstanding the subsequent transfer of the vessels to NDC, the maritime lien subsists.” [Emphasis and underscoring supplied.]

Clearly, as discussed by the foregoing jurisprudence and authorities, once a maritime lien attaches to the vessel, it continues to exist so long as it is not discharged and will not be defeated by a subsequent transfer of the vessel’s ownership.

Nicolas & De Vega Law Offices is a full-service law firm in the Philippines. You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines. You may also call us at +632 4706126, +632 4706130, +632 4016392 or e-mail us at info@ndvlaw.com .

Comments are closed.

  • fb
  • twitter
  • twitter