LAWS RELATED TO VESSELS AND SHIPPING IN THE PHILIPPINES

CODE OF COMMERCE

ARTICLE 573. Merchant vessels constitute property which may be acquired and transferred by any of the
means recognized by law. The acquisition of a vessel must appear in a written instrument, which shall not
produce any effect with respect to third persons if not inscribed in the registry of vessels.

The ownership of a vessel shall likewise be acquired by possession in good faith, continued for three years,
with a just title duly recorded. In the absence of any of these requisites, continuous possession for ten years
shall be necessary in order to acquire ownership.

A captain may not acquire by prescription the vessel of which he is in command.

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[With respect to Article 573, read P.D. No. 474, Sections 3 & 12(h)

Presidential Decree No. 474

PROVIDING FOR THE REORGANIZATION OF MARITIME FUNCTIONS IN THE PHILIPPINES,

CREATING THE MARITIME INDUSTRY AUTHORITY, AND FOR OTHER PURPOSES

Section 3. Definition of Terms. The terms, as used, in this Decree, shall have the following meaning, unless
the context of the particular usage of the term indicates otherwise;

a. "Maritime Industry", briefly referred to as "industry" in the broadest concept of the term. All enterprises
engaged in the business of designing, constructing, manufacturing, acquiring, operating, supplying, repairing
and/or maintaining vessels, or component parts thereof; of managing and/or operating shipping lines,
stevedoring arrastre and customs brokerage services, shipyards, dry docks, marine railways, marine repair
shops, shipping and freight forwarding agencies and similar enterprises.

b. "Vessels" or "Watercraft" Any barge, lighter, bulk carrier, passenger ship freighter, tanker, container ship,
fishing boats or other artificial contrivance utilizing any source of motive power, designed, used or capable of
being used as a means of water transportation operating either as common contract carrier, including fishing
vessels covered under Presidential Decree No. 43, except (1) those owned and/or operated by the Armed
Forces of the Philippines and by foreign governments for military purposes, and (ii) bancas, sailboats and
other waterborne contrivance of less than three gross tons capacity and not motorized.

c. "Philippine national" A citizen of the Philippines; or a partnership or association wholly owned by and
composed of citizens of the Philippines; or a corporation organized under the laws of the Philippines of which
at least sixty per cent of the capital stock outstanding and entitled to vote is owned and held by Philippine
citizens; or a trustee of funds for pensions or other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty per cent of the funds will accrues to the benefit of the
Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in an
enterprise, at least sixty percent of the members of the governing board of both corporations must be
Philippine nationals.

d. "Philippine flag vessel" A vessel or watercraft registered under Philippine laws.

e. "Foreign flag vessel" A vessel or watercraft registered under the laws of a country other than the Philippines.

f. "Philippines shipping companies" Philippine nationals registered and licensed under the laws of the
Philippines to engage in the business of overseas and/or domestic water transportation.

Section 12(h). Approve the sale, lease or transfer of management of vessels owned by Philippine Nationals
to foreign owned or controlled enterprises.

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ARTICLE 574. Builders of vessels may employ the materials and follow, with respect to their construction and
rigging, the systems most suitable to their interests. Ship owners and seamen shall be subject to what the
laws and regulations of the public administration on navigation, customs, health, safety of vessels, and other
similar matters.

ARTICLE 575. Co-owners of vessels shall have the right of repurchase and redemption in sales made to
strangers, but they may exercise the same only within the nine days following the inscription of the sale in the
registry, and by depositing the price at the same time.

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[With respect to Article 575, read Article 1620 of Civil Code]

Article 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other
co-owners or of any of them, are sold to a third person. If the price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one. Should two or more co-owners desire to exercise the right of
redemption, they may only do so in proportion to the share they may respectively have in the thing owned in
common. (1522a)

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ARTICLE 576. In the sale of a vessel it shall always be understood as included the rigging, masts, stores and
engine of a streamer appurtenant thereto, which at the time belongs to the vendor. The arms, munitions of
war, provisions and fuel shall not be considered as included in the sale.

The vendor shall be under the obligation to deliver to the purchaser a certified copy of the record sheet of the
vessel in the registry up to the date of the sale.

ARTICLE 577. If the alienation of the vessel should be made while it is on a voyage, the freightage which it
earns from the time it receives its last cargo shall pertain entirely to the purchaser, and the payment of the
crew and other persons who make up its complement for the same voyage shall be for his account.

If the sale is made after the vessel has arrived at the port of its destination, the freightage shall pertain to the
vendor, and the payment of the crew and other individuals who make up its complement shall be for his
account, unless the contrary is stipulated in either case.

ARTICLE 578. If the vessel being on a voyage or in a foreign port, its owner or owners should voluntarily
alienate it, either to Filipinos or to foreigners domiciled in the capital or in a port of another country, the bill of
sale shall be executed before the consul of the Republic of the Philippines at the port where it terminates its
voyage and said instrument shall produce no effect with respect to third persons if it is not inscribed in the
registry of the consulate. The consul shall immediately forward a true copy of the instrument of purchase and
sale of the vessel to the registry of vessels of the port where said vessel is inscribed and registered.

In every case the alienation of the vessel must be made to appear with a statement of whether the vendor
receives its price in whole or in part, or whether he preserves in whole or in part any claim on said vessel. In
case the sale is made to a Filipino, this fact shall be stated in the certificate of navigation.

When a vessel, being on a voyage, shall be rendered useless for navigation, the captain shall apply to the
competent judge on court of the port of arrival, should it be in the Philippines; and should it be in a foreign
country, to the consul of the Republic of the Philippines, should there be one, or, where there is none, to the
judge or court or to the local authority; and the consul, or the judge or court, shall order an examination of the
vessel to be made.

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If the consignee or the insurer should reside at said port, or should have representatives there, they must be
cited in order that they may take part in the proceedings on behalf of whoever may be concerned.

ARTICLE 579. After the damage to the vessel and the impossibility of her being repaired, in order to continue
the voyage had been shown, its sale at public auction shall be ordered, subject to the following rules:

1.The hull of the vessel, its rigging, engines, stores, and other articles shall be appraised, after making an
inventory, said proceedings to be brought to the notice of the persons who may wish to take part in the auction.

2.The order or decree ordering the auction to be held shall be posted in the usual places, an announcement
thereof to be inserted in the Official Gazette and in two of the newspapers of the largest circulation of the port
where the auction is to be held, should there be any. The period which may be fixed for the auction shall not
be less than twenty days.

3. These announcements shall be repeated every ten days, and their publication shall be made to appear in
the records.

4. The auction shall be held on the day fixed, with the formalities prescribed in the common law for judicial
sales.

5. If the sale should take place while the vessel is in a foreign country, the special provisions governing such
cases shall be observed.

ARTICLE 585. For all purposes of law not modified or restricted by the provisions of this Code, vessels shall
continue to be considered as personal property.

ARTICLE 589.If two or more persons should be part owners of a merchant vessel, a partnership shall be
presumed as established by the coowners. This partnership shall be governed by the resolutions of the
majority of the members.

If the part owners should not be more than two, the disagreement of views, if any, shall be decided by the vote
of the member having the largest interest. If the interests are equal, it should be decided by lot.The person
having the smallest share in the ownership shall have one vote; and proportionately the other part owners as
many votes as they have parts equal to the smallest one.

A vessel may not be detained, attached or levied upon in execution in its entirety, for the private debts of a
part owner, but the proceedings shall be limited to the interest which the debtor may have in the vessel,
without interfering with the navigation.

ARTICLE 591.All the part owners shall be liable, in proportion to their respective ownership, for the expenses
for repairing the vessel, and for other expenses which are incurred by virtue of a resolution of the majority.
They shall likewise be liable in the same proportion for the expenses for the maintenance, equipment, and
provisioning of the vessel, necessary for navigation.

ARTICLE 592. The resolution of the majority with regard to the repair, equipment, and provisioning of the
vessel in the port of departure shall bind the minority, unless the minority members renounce their interests,
which must be acquired by the other co-owners, after a judicial appraisement of the value of the portion or
portions assigned. The resolutions of the majority relating to the dissolution of the partnership and sale of the
vessel shall also be binding on the minority.

The sale of the vessel must be made at public auction, subject to the provisions of the law of civil procedure,
unless the co-owners unanimously agree otherwise, saying always the right of repurchase and redemption
provided for in Article 575.

ARTICLE 593. The owners of a vessel shall have preference in her charter over other persons, under the
same conditions and price. If two or more of them should claim this right, the one having the greater interest

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 LAWS RELATED TO VESSELS AND SHIPPING IN THE PHILIPPINES

shall be preferred; and should they have equal interests, the matter shall be decided by lot.

ARTICLE 606. If the captain should be a co-owner of the vessel, he may not be discharged unless the ship
agent returns to him the amount of his interest therein, which, in the absence of agreement between the
parties, shall be appraised by experts appointed in the manner established in the law of civil procedure.

ARTICLE 607. If the captain who is a co-owner should have obtained the command of the vessel by virtue of
a special agreement contained in the articles of association, he may not be deprived of his office except for
the causes mentioned in Article 605.

ARTICLE 608. In case of the voluntary sale of the vessel, all contracts between the ship agent and the
captain shall terminate, reserving to the latter his right to the indemnity which may pertain to him, according to
the agreements made with the ship agent. They vessel sold shall remain subject to the security of the
payment of said indemnity if, after the action against the vendor has been instituted, the latter is found to be
insolvent.

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Presidential Decree No. 761

AMENDING SECTION EIGHT HUNDRED SIXTY OF THE TARIFF AND CUSTOMS CODE OF THE
PHILIPPINES, AS AMENDED, BY ALLOWING THE REGISTRATION OF VESSELS THE OWNERSHIP
OF WHICH IS VESTED IN CORPORATIONS OR ASSOCIATIONS, AT LEAST SIXTY PERCENT OF THE
CAPITAL STOCK OR CAPITAL OF WHICH BELONG TO CITIZENS OF THE PHILIPPINES, AND FOR
OTHER PURPOSES

Section 1. Section 806 of the Tariff and Customs Code of the Philippines, as amended, is hereby amended to
read as follows:

Sec. 806. Certificate of Philippine Registry. Upon registration of a vessel of domestic ownership, and of more
than fifteen tons gross, a certificate of Philippine registry shall be issued for it. If the vessel is of domestic
ownership, and of fifteen tons gross or less, the taking of the certificate of Philippine registry shall be optional
with the owner. "Domestic ownership, as used in this section means ownership vested in citizens of the
Philippines or corporations or associations organized under the laws of the Philippines at least sixty per
centum of the capital stock or capital of which is wholly owned by citizens of the Philippines, and, in the case
of corporations or associations which will engage in coastwise trade the president or managing directors
thereof shall be such citizens: Provided, That the members of the crew of the vessel, except specialized
fishing vessels, shall all be citizens of the Philippines, Provided, That the certificate of Philippine registry
issued to a vessel prior to the approval of this Code shall not be affected; Provided, further, That any vessel of
more than fifteen gross tons which on February eight, nineteen hundred and eighteen, had a certificate of
Philippine registry under existing law, shall likewise be, deemed a vessel of domestic ownership if there has
been no change in its ownership or if the capital of the association or capital stock of the corporation owning
such vessel has not been transferred to persons
who are not citizens of the Philippines and if any such vessels should have been totally lost through shipwreck,
collision or any other marine disaster while being lawfully operated, it may be replaced with another vessel of
the same or lesser tonnage by the same person, association or corporation owning and operating same by
virtue of this section, under such terms and conditions as may be prescribed by the Maritime Industry
Authority consistent with public policy and with the view of its utility for government service in case of war or
any public emergency: Provided, further, That the controlling interest of the association or corporation shall
not be considered as held by the citizen of the Philippines; (a) if less than sixty percent of the capital or capital
stock is held by such citizens or such capital or capital stock is subject to any trust or fiduciary obligation in
favor of any person not a citizen of the Philippines; (b) if less than sixty percent of the capital or capital stock in
said association or corporation entitled to vote is in the hands of citizens of the Philippines; (c) if by means of
(a) any contract or agreement, more than forty percent of the capital or capital stock can be voted directly or
indirectly in favor of any person not a citizen of the Philippines: or (d) if by other means, the control of more

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 LAWS RELATED TO VESSELS AND SHIPPING IN THE PHILIPPINES

than forty percent of the capital or capital stock of the association or corporation is conferred upon or allowed
to be exercised by any person not a citizen of the Philippines."

Section 2. The above definition of "domestic ownership" notwithstanding, an enterprise duly registered with
the Board of Investments, under R.A. 5186 or 6135, whether or not entirely owned by foreign nationals, may
register its own vessels under the provision of the section immediately preceding if such vessels are to be
used exclusively to transport its own raw materials and finished products in Philippine waters as an incident to
its manufacturing, processing or business activity registered with the Board of Investments and certified to by
said Board as an essential element in the operation of the registered project.

Section 3. Any provision of the law, decree, executive order, or rules and regulations to the contrary
notwithstanding, the Maritime Industry Authority is hereby vested with the exclusive authority over the
registration and documentation of Philippine vessels, as well as the issuance of all certificates, licenses or
other documents necessary or incident to such registration and documentation.

Section 4. The Maritime Industry Authority shall be subject to approval by the Office of the President, issue
such rules and regulations implementing the provisions of this decree.

Section 5. All laws, decrees, executive orders, or rules and regulations, or parts thereof, inconsistent with this
Decree are hereby repealed or modified accordingly.

Section 6. This Decree shall take effect immediately.

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CA 65 - COGSA

TITLE I - Section 1. When used in this Act

(a) The term "carrier" includes the owner or the charterer who enters into a contract of carriage with a shipper.
(d) The term "ship" means any vessel used for the carriage of goods by sea.

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CIVIL CODE

Article 1132. The ownership of movables prescribes through uninterrupted possession for four years in good
faith.

The ownership of personal property also prescribes through uninterrupted possession for eight years, without
need of any other condition.With regard to the right of the owner to recover personal property lost or of which
he has been illegally deprived, as well as with respect to movables acquired in a public sale, fair, or market, or
from a merchant's store the provisions of Articles 559 and 1505 of this Code shall be observed. (1955a)

Article 1484. In a contract of sale of personal property the price of which is payable in installments, the
vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or moreinstallments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure
to pay cover two or more installments. In this case, he shall have no further action against the purchaser to
recover any unpaid balance of the price. Any agreement to the contrary shall be void. (1454-A-a)

Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal property
with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.
(1454-Aa)

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Article 1486. In the case referred to in two preceding articles, a stipulation that the installments or rents paid
shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable
under the circumstances. (n)

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Republic Act No. 7471

AN ACT TO PROMOTE THE DEVELOPMENT OF PHILIPPINE OVERSEAS SHIPPING

SECTION 1. Title. — This Act shall be known and cited as the "Philippine Overseas Shipping Development
Act."

SECTION 2. Declaration of Policy. — It is hereby declared the policy of the Government of the Philippines to:

(a) Develop and maintain a Philippine Metropolitan Marine composed of well-equipped, safe and modern
vessels most suited for, Philippine requirements and conditions, manned by qualified Filipino officers and
crew, and owned and operated under the Philippine flag by citizens of the Philippines or by associations or
corporations organized under the laws of the Philippines, at least sixty percent (60%) of the capital of which is
owned by citizens of the Philippines;

(b) Assist in the development, recovery and expansion of Philippine overseas shipping capable of meeting the
requirements of the expanding international trade of the Philippines;

(c) Provide assistance to Philippine Shipping enterprises and encourage the long range vessel acquisition
development modernization and expansion through private investments without direct government financial
assistance; and

(d) Create a Healthy climate to attract private enterprises.

SECTION 3. Definition. — As used this Act:

(a) "Philippine overseas shipping" means the transport of goods and/or passengers by a ship owned and
operated under the Philippine flag by a Philippine shipping enterprise, except when the ship is operated solely
between ports in the Philippines;

(b) "Philippine shipping enterprise" means a citizen of the Philippines or an association or corporation
organized under the laws of the Philippines, at least sixty percent (60%) of the capital of which is owned by
citizens of the Philippines and engaged exclusively in Philippine overseas shipping;

(c) "MARINA" means the Maritime Industry Authority;

(d) "Monetary authority" means the Central Bank of the Philippines and any other agency in charge of foreign
exchange controls; and

(e) "Regulation" means the rules and regulations promulgated pursuant to Section 10 hereof.

SECTION 4. Foreign Exchange Requirements. — Foreign exchange requirements of Philippine Shipping

enterprises for the purchase of oceangoing vessels for registration under the Philippine flag, for repair or
improvement of vessels, for importation of engines, spare parts, accessories, supplies, containers and for
other expenses required for the operation of vessels in foreign ports or in the high seas, when recommended
by the MARINA, shall be made available to the Philippine shipping enterprise subject to the regulations.

SECTION 5. Acquisition of Oceangoing Vessels. — Philippine shipping enterprises may likewise acquire
oceangoing vessels for Philippine overseas shipping upon approval by the MARINA, subject to the guidelines

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prescribed in the regulations: provided, that:

(a) The funds utilized in the acquisition of the vessel are financed from sources other than the Philippine
banking system;
(b) No guaranty of the monetary authority or of any Philippine government or private financial institution is
granted or extended for the purpose;
(c) The vessel serves as sole collateral for the financing of the vessel and no other asset of the Philippine
shipping enterprise is pledge, mortgaged, or used as security in case of default;
(d) All foreign exchange requirements for the servicing of the loan, the operation, maintenance and repair of
the vessel, the purchase of supplies and related equipment shall be financed solely from earnings derived
from the operation of the vessel and no foreign exchange shall be made available by the monetary authority
and the Philippine banking system for these purposes;
(e) Mortgage documents and/or other financial agreements shall be filed with the monetary authority and such
other government agencies in charge of such mortgage formalities; and
(f) Any excess foreign exchange earning shall be inwardly remitted and surrendered to the Philippine banking
system.

SECTION 6. Exemption from Import Duties and Taxes. — The importation by a Philippine shipping enterprise
of oceangoing vessels for registration under the Philippine flag shall be exempt from the payment of import
duties and taxes. The spare parts for the repair and/or overhaul of vessels shall likewise be exempt from the
payment of import duties and taxes provided, that such items are destined or consigned either to:

(a) A Philippine dry-docking or repair facility, accredited by the MARINA and registered as a customs-bonded
warehouse, which will undertake the necessary repairs and works on the vessel; and

(b) The vessel in which the items are to be installed: provided That, if such items are found in locations other
than the two (2) aforementioned ones or in places not authorized by customs, the person or entity in
possession of such items shall be subject to full duties and taxes, including surcharges and penalties.

Local manufactures or dealers who sell machinery, equipment, materials and spare parts to a Philippine
shipping enterprise shall be entitled to tax credits for the full amount of import duties and taxes actually paid
thereon, or on parts or components thereof, subject to the approval of the Secretary of Finance, upon the
recommendation of the MARINA.

SECTION 7. Exemption from Income Tax. — A Philippine shipping enterprise shall be exempt from payment
of income tax on income derived from Philippine overseas shipping for a period of ten (10) years from the date
of approval of this Act: provided, that:

(a) The entire net income, after deducting not more than ten percent (10%) thereof for distribution of profits or
declaration of dividends, which would otherwise be taxable under the provisions of Title II of the National
Internal Revenue Code, is reinvested for the construction, purchase, or acquisition of vessels and related
equipment and/or in the improvement of modernization of its vessels and related equipment in accordance
with the regulations; and

(b) The cumulative amount so reinvested shall not be withdrawn for a period of ten (10) years after the
expiration of the period of income tax exemption or until the vessel or related equipment so acquired have
been fully paid, whichever date comes earlier. Any amount not so invested or withdrawn prior to the expiration
of the period stipulated herein shall subject to the corresponding income tax, including penalties, surcharges
and interests.

SECTION 8. Registration and Deletion of Vessels. — All vessels owned by Philippine shipping enterprises
and availing of the incentives under this Act shall be registered under the Philippine flag. Said vessels can
only be deleted from the Philippine registry after the MARINA has determined that:

(a) No other Philippine shipping enterprise is interested in acquiring the vessel; or

(b) The vessel has to be scrapped.

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SECTION 9. Requisition of Vessels. — The President of the Philippines may, in times of war and other
national emergency, requisition absolutely or temporarily, for any naval or military purpose, any and all
vessels of the Philippine registry. The Government shall pay the owner or operator of the vessel, based on
normal conditions at the time of requisition;

(a) The fair market value, if the vessel is taken absolutely, or

(b) The fair charter value, if the vessel is taken temporarily. In case of disagreement, such fair value shall be
determined by an arbitration committee composed of:
(c) One (1) member to be appointed by the MARINA;
(d) One (1) member to be appointed by the owner or operator of the vessel; and
(e) One (1) member to be appointed by the two (2) members so appointed.

The decision of the arbitration committee shall be final and binding on both parties.

SECTION 10. Rules and Regulations. — The MARINA, in consultation with the monetary authority and the
Department of Finance, shall jointly formulate and promulgate the rules and regulations necessary for the
implementation of this Act taking into consideration the policies and programs of the Government for the
development of the Philippine overseas shipping.

SECTION 11. Annual Report. — The MARINA, in coordination with the monetary authority and the
Department of Finance, shall submit an annual report to the President of the Philippines and the Congress of
the Philippines on the implementation of this Act, which report shall include:

(a) The amount of foreign exchange earned, acquired and spent by Philippine shipping enterprises;
(b) The amount of income tax and import duties and taxes for which exemption have been granted;
(c) The additional oceangoing vessels constructed, purchased or acquired, the improvement made thereon
and the additional related equipment procured; and
(d) Such other information as the MARINA may deem necessary or the President of the Philippines may
require.

SECTION 12. Penal Provisions. — Violation of the provisions of this Act or the rules and regulations
promulgated to implement the same shall be punished by a fine of not more than Ten thousand pesos
(P10,000) or imprisonment for not more than five (5) years, or both such fine and imprisonment, at the
discretion of the court.

If the violation is committed by an association or corporation, the penalties prescribed hereunder shall be
imposed on the president the chief executive officer and the other officials and employees responsible for the
violation.

If the violation is committed by a government official or employee, he shall, in addition to the penalties
prescribed hereunder, be dismissed from the government service with all administrative penalties accessory
thereto.

SECTION 13. Repealing Clause. — All laws, executive orders, regulations, or parts thereof, inconsistent with
the provisions of this Act are hereby repealed, amended or modified accordingly.

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