CHARTER PARTIES

Denzel Edward V. Cariaga

2013-0058
 Topics to be discussed
• Ports of Unloading
• Demurrage
• Rights and Obligations of the Charter Parties
• Replacement of Vessel
• Effect of Billing of Lading
• Freight
 PORT OF UNLOADING
• The port of destination where the cargoes will be unloaded must be
stipulated in the Charter Party.
• The parties may also provided that the charterer is given the option of
discharge at one or more ports within a geographic range.
• The option may be necessary in some cases based on sound
commercial reason that the charterer may not know at the time charter
is fixed the best market for his goods.
PORT OF UNLOADING
 SAFE-PORTS CLAUSE
• When an option is given to the charterer, the shipowner may
protect himself by including a “safe-ports clause” in the charter
party whereby he reserves the right to decline the risk his
vessel in an unsafe port.
DEMURRAGE
 DEMURRAGE
• In strict sense of the term, it means a sum of money due by express
contract for the detention of the vessel in loading or unloading.
Beyond the time allowed for that purpose in the charter party.
• If the vessel is detained beyond the number of days agreed upon in
the charter contract for the loading and unloading of cargo, or for
eventual sail, the charterer shall answer for the demurrage incurred
thereby, the sum of which is usually fixed by the parties in the charter
party. (National Food Authority vs. Court of Appeals, 311 SCRA 700)
 LAY DAYS
• It refers to Article 652 paragraph 10 of the Code of commerce
which provides that the time for loading and unloading shall be
provided for in the charter party. The period stipulated is known
as “LAY DAYS”.
 ARTICLE 656, CODE OF COMMERCE

• It provides that “if in the charter party the time in which the
loading and unloading are to take place is not stated, the
usage of the port where these acts take place shall be
observed. After the stipulated or the customary period has
passed, and there is no express proviso in the charter party
fixing the indemnity for the delay, the captain shall be
entitled to demand demurrage for the lay days and extra lay
days which have elapsed in loading and unloading”.
 COMPUTATION OF LAY DAYS
• If no lay day is provided for in the charter party, it is understood
that the charterer will unload and discharge the cargoes within a
reasonable time or with reasonable diligence.
 DEADFREIGHT
• Where the charterer failed to occupy the leased portion of the
vessel, he may thereby be made liable by the shipowner for the
“deadfreight” that occurred.
• It means the amount paid by or recoverable from a charterer of a
ship for such part of the ship's capacity as the charterer has
contracted for but fails to occupy.
 RIGHTS AND OBLIGATIONS OF THE
CHARTER PARTIES
• The parties in a charter party are bound to comply with their
respective obligations imposed by law. As in any ordinary
contract, the parties in the charter agreement have corresponding
rights and obligations. Apart from those accruing from the
stipulations of the parties, the statutory rights and obligations of
the charter parties are to be found in the Code of Commerce.
(National Food Authority vs. Court of Appeals, 311 SCRA 700)
 RIGHTS AND OBLIGATIONS OF
SHIPOWNER OR CAPTAIN
• The evident failure or refusal on the part of the shipowner or of his agents
to receive cargo which had been contracted to be transported under the
charter party constitutes a sure breach of the charter party, as to warrant a
suit for damages by the charterer for such breach. (Behn, Meyer & Co. vs.
Banco Espanol – Filipino, 11 Phil 253)
• The shipowner is bound to observe, relative to the charter party, the capacity
of the vessel or that which is indicated expressly in the registry, a margin
greater than two percent between that represented and her actual capacity
which is not allowable (Article 669, Code of Commerce)
 RIGHTS AND OBLIGATIONS OF
SHIPOWNER OR CAPTAIN
• Generally, any loss incurred by a shipper whose cargo is refused
on account of the receipt by the shipowner of a greater amount
of cargo belonging to other persons shall be for the account of
the shipowner in the form of indemnity. If there is only one
shipper and there was apparent fraud or error in the vessel’s
capacity, the charterer may opt to have freight reduced if he does
not choose to rescind the charter, with a further right to be
indemnified therefor. (Article 679. Code of Commerce)
 RIGHTS AND OBLIGATIONS OF
SHIPOWNER OR CAPTAIN
• If there should be several charter parties, and due to lack space,
not all could be accommodated although not one would want to
rescind the charter, preference shall be given to the person who is
first in loading his cargo, and the others shall have preference in
the order of the dates of their charter. In the absence of priority,
the charterers may choose to load in proportion to the amounts
of weight or space that they may have contracted, with a right to
indemnified for the loss. (Article 649, Code of Commerce)
 RIGHTS AND OBLIGATIONS OF
SHIPOWNER OR CAPTAIN
• The shipowner, under certain conditions, may effect a substitution in respect
of the vessel which had been initially chartered with that of another, so long
as the substitute vessel had been duly inspected and is seaworthy. (Article
670, Code of Commerce)
• Furthermore, after three-fifths (3/5) of the vessel is loaded the shipowner
may not substitute the chartered vessel with another one unless he procures
the consent of the charterers or shippers. Otherwise, he runs the risk of
answering for all damages suffered during the voyage by those who did not
give their consent. (Article 670, Code of Commerce)
 RIGHTS AND OBLIGATIONS OF
SHIPOWNER OR CAPTAIN
• The captain may not, if the vessel has been chartered in whole, accept cargo
from any other person unless the consent of the charterer is obtained.
Otherwise, the captain may be compelled by the charterer to unload the said
cargo and pay to the charterer any damage that he may suffer on account
thereof. (Article 672, Code of Commerce)
• The shipowner may also be generally held liable for damages incurred by the
charterer due to the voluntary delay of the captain in putting to sea, provided
he was requested, by way of a notarial or judicial notice, to put to sea at the
proper time. (Article 672, Code of Commerce)
 RIGHTS AND OBLIGATIONS OF
CHARTERER
• The charterer shall have the right to subcharter the vessel to a third person
only if he is so authorized by the shipowner. Otherwise, he shall be liable to
the shipowner for any damage caused to the latter by virtue of the
subcharter. (Article 679, Code of Commerce)
• A charterer who loads goods different from that contracted upon, without
the knowledge of the shipowner or captain, and which results to damage due
to confiscation, embargo, detention, and other causes, to the said shipowner,
shall be liable to indemnify the parties injured thereby. (Article 681, Code of
Commerce)
 RIGHTS AND OBLIGATIONS OF
CHARTERER
• Should illicit cargo be shipped by the charterer in the chartered vessel with
the knowledge of the shipowner or of the captain, said charterer shall be
jointly liable with the shipowner for all damages caused to the other shippers.
(Article 682, Code of Commerce)
• The charterers and shippers may not, for the payment of freight and other
expenses incurred, abandon the goods damaged due to inherent defects or
by reason of fortuitous event. Abandonment may be proper however if the
cargo, if consisting of liquid, may have leaked out and none remains except
one-fourth (1/4) of their contents. (Article 687, Code of Commerce)
LIABILITY OF CHARTERER TO SHIPOWNER IN
CASE OF BAREBOAT CHARTER

• The complete and exclusive relinquishment of possession, command

and navigation of the vessel, the charterer and later the sub-charterer
became the vessel’s owner pro hac vice. In the absence of any showing
that the vessel or any part thereof was commercially offered for use to
the public, the agreements/charter parties are that of a private carriage
where the rights of the contracting parties are primarily defined and
governed by the stipulations in their contract. (De La Torre vs. Court
of Appeals, G.R. no. 160088 and 160565, July 13, 2011)
LIABILITY OF CHARTERER TO SHIPOWNER IN
CASE OF BAREBOAT CHARTER

• Although certain statutory rights and obligations of charter

parties are found in the Code of Commerce, these provisions will
not always apply to the case against the Charterer.
• None of the provisions found in the Code of Commerce deals
with the specific rights and obligations between the real
shipowner and the charterer obtaining in this case. New Civil
Code supplies the deficiency.
LIABILITY OF CHARTERER TO SHIPOWNER IN
CASE OF BAREBOAT CHARTER

• The Charterer may likewise be made liable under Article 1665 and
1667 of the New Civil Code because the charterer or lessee under the
bareboat charter is contract-bound to return the thing leased and it was
liable for the deterioration or loss of the same. The sub-charterer or
sub-lessee is liable under Article 1651 of the New Civil Code.
Although the sub-charterer is not a privy to the contract between the
charterer and the owner, the sub-charterer remained bound to preserve
the chartered vessel for the latter. (De La Torre vs. Court of Appeals,
G.R. no. 160088 and 160565, July 13, 2011)
• Article 1665. The lessee shall return the thing leased, upon the termination of
the lease, as he received it, save what has been lost or impaired by the lapse of
time, or by ordinary wear and tear, or from an inevitable cause. (1561a)

• Article 1667. The lessee is responsible for the deterioration or loss of the
thing leased, unless he proves that it took place without his fault. This burden of
proof on the lessee does not apply when the destruction is due to earthquake,
flood, storm or other natural calamity. (1563a)
LIABILITY OF CHARTERER TO SHIPOWNER IN
CASE OF BAREBOAT CHARTER

• The person who had been entrusted when it was dry-pocked for
repairs was made liable under Article 1189 of the New Civil Code
because before the vessel could be returned, it was lost due to the
negligence of the sub-charterer to whom charterer chose to sub-
charterer or sublet the vessel. (De La Torre vs. Court of Appeals,
G.R. no. 160088 and 160565, July 13, 2011)
• Article 1189. When the conditions have been imposed with the intention of suspending the
efficacy of an obligation to give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the pendency of the condition:
• (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
• (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes, or goes out of commerce, or disappears in
such a way that its existence is unknown or it cannot be recovered;
• (3) When the thing deteriorates without the fault of the debtor, the impairment is to be
borne by the creditor;
• (4) If it deteriorates through the fault of the debtor, the creditor may choose between the
rescission of the obligation and its fulfillment, with indemnity for damages in either case;
• (5) If the thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor;
• (6) If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary.
 REPLACEMENT OF VESSEL
• The shipowner may replace the chartered vessel in the following
instances:
• If, after receiving a part of the freight, should not find sufficient to make up at
least three-fifths (3/5) of the amount which the vessel may hold, at the price he
may have fixed, he may substitute for the transportation another vessel
inspected and declared suitable for the same voyage. The expenses of transfer
and the increase in the price of the charter, should there be any, being for the
ship owner’s account.
• Substitution with the consent of the charters or shippers.
 REPLACEMENT OF VESSEL

• After three-fifths (3/5) of the vessel has been loaded, the

person from who she is chartered may not, without the
consent of the charterers or shippers, substitute the vessel
designated in the charter party by another one. The Ship
owner is under the penalty of making himself thereby liable
for all the losses and damages occurring during the voyage to
the cargo of those who did not consent to the change.
 EFFECT OF BILL OF LADING
• If a bill of lading was issued by the shipowner to the charterer,
the charter party still governs their rights and the bill of lading
may be used as proof of receipt of the goods. As between the
parties, the bill of lading is still proof of receipt of the goods but
the terms and conditions of the contract are in the charter party.
 EFFECT OF BILL OF LADING
• The bill of lading does not operate as a new contract or modify the charter
party as between the shipowner and the charterer, the bill of lading does
constitute a contract between the vessel and the consignee, and neither he
nor his endorsee is bound by the terms of the charter party of which he has
no notice or knowledge.
• If the bill of lading (together with a charter party) that is issued by the
shipowner is a negotiable document of title, the bill of lading is binding in
favor of a subsequent holder for value. As this third person, there is no other
contract but the bill of lading.
 EFFECT OF BILL OF LADING
• The code of commerce provides that if the cargo should be received
without the charter party having been signed, the contract shall be
understood as executed in accordance with what appears in the bill of lading,
the sole evidence of title with regard to the cargo for determining the rights
and obligations of the ship agent, of the captain, and of the charterer.
• In bareboat charter, the charterer himself controls the master, and bills of
lading are issued just as they would be if the ship were under the hand of her
general owner; the personal liability however, is that of the demise charterer.
 FREIGHT
• The charterer must pay the shipowner the amount agreed upon.
• Article 667 provides that the goods loaded shall be liable in the
first place for the freight and expenses during 30 days to be
counted from the date of delivery or deposit.
• Any natural increase in weight or size of the merchandise loaded
on the vessel shall accrue to the benefit of the owner, and shall
pay the proper freightage fixed in the contract for the same.
 LIEN ON THE CARGOES

• Article 665 provides that the cargo shall be especially liable

for the payment of:
1. The Freightage
2. Expenses and duties arising therefrom, which must be reimbursed
by the shippers
3. For the part of the general average which may correspond to it.
 LIEN ON THE CARGOES
• It shall not be legal for the captain to delay unloading on account
of suspicion that this obligation may not be complied with.
Should there be reasons for distrust, the judge or court, at the
instance of the captain, may order the deposit of the merchandise
until he has been paid in full.
 LIEN ON THE CARGOES
• The freight was already included in the purchase price paid by it did
not free the cargo from the carrier’s lien provided for in Article 665 of
the Code of Commerce, if the freight has not yet been fully paid by
the charterer. (National Rice and Corn Corporation vs. Macadaeg)
• In connection with the carrier’s lien, the law allows the sale of the
cargo under the conditions prescribed under Articles 666-668 of the
Code of Commerce which are quoted hereunder. However, the right to
sell the cargo is subject to the right of third persons who received the
goods without malice and for a valuable consideration.
 LIEN ON THE CARGOES

• The court may likewise order the deposit of the goods at the
instance of the captain in the case mentioned in Article 665
of the Code of Commerce when there is a reason for distrust
and the two cases mentioned in Article 668 particularly if:
1. The consignee refuses to receive the goods
2. The consignee cannot be found.