WHEREAS, due to the heavy capital requirement for ship acquisition and operation, the shipping industry has turned to financial institutions, both local and foreign, for assistance;
WHEREAS, Philippine laws on ship mortgage have not been responsive to the needs of vessel financing such that it has deterred the extension of needed loans to the industry;
WHEREAS, there is a recognized need for extending the benefits accorded to overseas shipping under Presidential Decree No. 214 to domestic shipping.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby order the enactment of a ship mortgage law as follows:
SECTION 1. Title—This Decree shall be known as "The Ship Mortgage Decree of 1978".
SEC. 2. Who may Constitute a Ship Mortgage—Any citizen of the Philippines, or any association or corporation organized under the laws of the Philippines, at least sixty per cent of the capital of which is owned by citizens of the Philippines may, for the purpose of financing the construction, acquisition, purchase of vessels or initial operation of vessels, freely constitute a mortgage or any other lien or encumbrance on his or its vessels and its equipment with any bank or other financial institutions, domestic or foreign.
SEC. 3. Mortgage of Vessels of Domestic Ownership; records—
SEC. 4. Preferred Mortgages—
SEC. 5. Certified Copies of Mortgage; exhibition—The Coast Guard District or Station Commander upon the recording of a preferred mortgage shall deliver two certified copies thereof to the mortgagor who shall place, and use due diligence to retain, one copy on board the mortgaged vessel notice of which shall be posted in a conspicuous place thereat and cause such copy and the documents of the vessel to be exhibited by the master to any person having business with the vessel, which may give rise to a maritime lien upon the vessel or to the sale, conveyance, or mortgage thereof. The master of the vessel shall upon the request of any such person, exhibit to him the documents of the vessel placed on board thereof. The requirement of this Section that a copy of a preferred mortgage be placed and retained on board the mortgaged vessel shall not apply in the case of a mortgaged vessel which is not self-propelled (including but not limited to, barges, scors, lighters, and car floats).
If the master of the vessel willfully fails to exhibit the documents of the vessel or the copy of any preferred mortgage thereof, the Philippine Coast Guard may suspend or cancel the master's license.
SEC. 6. Prior and Subsequent Maritime Liens on Mortgaged Vessel—The mortgagor (1) shall, upon request of the mortgagee, disclose in writing to him prior to the execution of any preferred mortgage, the existence of any maritime lien, prior mortgage, or other obligation or liability upon the vessel to be mortgaged, that is known to the mortgagor, and (2) without the consent of the mortgagee, shall not incur, after the execution of such mortgage and before the mortgagee has had a reasonable time in which to record the mortgage and have indorsements in respect thereto made upon the documents of the vessel, any contractual obligation creating a lien upon the vessel other than a lien for wages of stevedores when employed directly by the owner, operator, master, ship's husband, or agent of the vessel, for wages of the crew of the vessel, for general average, or for salvage, including contract salvage, in respect to the vessel, tonnage dues and all other charges (not to exceed P20,000) of the Philippine Government in respect to the vessel.
A mortgagor who, with intent to defraud, violates the above provision and if the mortgagor is a corporation or association, the president or other principal executive officer of the corporation or association, shall be punished by a fine of not, more than P5,000 or imprisonment of not more than two years, or both. The mortgage indebtedness shall thereupon become immediately due and payable at the election of the mortgagee.
SEC. 7. Record of Notice of Claim of Lien on Mortgaged Vessel; discharge of lien—
SEC. 8. Conditions Precedent to Record; interest on preferred Mortgage—
SEC. 9. Inspection of the Copies from Record; fees—Each Coast Guard District or Station Commander shall permit records made under the provisions of this decree to be inspected during office hours, under such reasonable regulation as the Philippine Coast Guard may establish. Upon the request of any person the Coast Guard District or Station Commander shall furnish him from the records of the Coast Guard's Office (1) a certificate setting forth the names of the owners of any vessel, the interest held by each owner, and the material facts as to any mortgage covering, or any lien or other encumbrance upon, a specified vessel, (2) a certified copy of any mortgage, notice of claim of lien, or certificate of discharge in respect to such vessel or (3) a certified copy as required by subsection (c) of Section 8 hereof. The Philippine Coast Guard shall collect the fees as provided for under existing laws and regulations for any mortgage recorded, or any certificate or certified copy furnished by it.
SEC. 10. Lien of preferred Mortgage; foreclosure; jurisdiction; procedure—A preferred mortgage shall constitute a lien upon the mortgaged vessel in the amount of the outstanding mortgage indebtedness secured by such vessel. Upon the default of any torn or condition of the mortgage, such lien may be enforced by the mortgagee by suit in lien in admiralty, wherein the vessel itself may be made a party defendant and be arrested in the manner as provided in Section 11 hereof. Original jurisdiction of all such suits is granted to the Court of First Instance of the Philippines exclusively. In addition to any notice by publication, actual notice of commencement of any such suit shall be given by the mortgagee, in such manner as the court shall direct, to (1) the master, other ranking officer, or caretaker of the vessel, and (2) any person who has recorded a notice of claim of an undischarged lien upon the vessel, as provided in Section 7 hereof, unless after search by the mortgagee satisfactory to the court, such mortgagor, master, other ranking officer, caretaker, or claimant is not found within the Philippines. Failure to give notice to any such person, as required by this Section, shall not constitute a jurisdictional defect; but the mortgagee shall be liable to such person for damages in the amount of his interest in the vessel terminated by the suit.
In case of judicial foreclosure as provided herein, the provisions of Rule 68 of the New Rules of Court, if not inconsistent herewith, shall apply.
The lien of a preferred ship mortgage may also be enforced by a suit in rem in admiralty or otherwise in any foreign country in which the vessel nay be found pursuant to the procedure of said country for the enforcement of ship mortgages constituting maritime liens on vessels documented under the laws of said country.
SEC. 11. Arrest of Vessels—Upon the filing of the petition for the judicial foreclosure of a Preferred Ship Mortgage, or immediately thereafter, the applicant may apply exparte for an order for the arrest of the mortgaged vessel or vessels and the judge shall immediately issue the same, provided that it is made to appear by affidavit of the applicant, or of some other person who personally knows the facts that a default in the mortgage has occurred and that applicant files a bond executed to the adverse party in an amount to be fixed by the judge, not exceeding the applicant's claim, conditioned that the latter will pay all the costs which may be adjudged to the adverse party and all damages which he may sustain by reason of such arrest, if the court shall finally adjudge that the applicant was not entitled thereto.
SEC. 12. Discharge of Order of Arrest: Counterbond—At any time after an order of arrest has been granted, the party whose vessel or vessels had been arrested, or the person appearing in his behalf, may, upon reasonable notice to the applicant, apply to the judge who granted the order, or to the judge of the court in which the action is pending, for an order discharging the order of arrest. That judge shall order the discharge of the arrest if a cash deposit is made, or counterbond executed to the creditor is filed, on behalf of the adverse party, with the clerk or judge of the court the application is made in an amount double the value of the claim to secure the payment of any judgment that the creditor may recover in the action. Upon the filing or such counterbond, copy thereof shall forthwith be served on the creditor of his lawyer. Upon discharge of the order of arrest, the property arrested or seized shall be delivered to the party making the deposit or giving the counterbond, or the person appearing in his behalf, the deposit or counterbond aforesaid standing in place of the vessel or vessels released. Should such deposit or counterbond for any reason be found to be, or become insufficient, and the party furnishing the same fails to file an additional co counterbond, the attaching creditor may apply for a new order of arrest or seizure.
SEC. 13. Discharge of Order of Arrest for Improper or Irregular Issuance—The party whose vessels has been arrested may also, at any time either before or after the release of the arrested vessel, or before any arrest or seizure has been effected, upon reasonable notice to the creditor, apply to the judge who granted the order, or to the judge of the court in which the action is pending, for an order to discharge the order of arrest or seizure on the ground that the same was improperly or irregularly issued. After hearing, the judge shall order the discharge of the order of arrest or seizure if it appears that it was improperly or irregularly issued and the defect is not cured forthwith.
SEC. 14. Extrajudicial Foreclosure—The provisions of the Chattel Mortgage Law on the remedy of extra-judicial foreclosure of mortgages in so far as they are not inconsistent herewith shall still apply. For the purpose of taking possession of the vessel or vessels, the foreclosing creditor may secure from a judge of the Court of First Instance of the province where the vessel may be found or where the creditor or debtor resides an order for the arrest or seizure of the vessel. Upon such order of seizure or arrest being issued, the sheriff shall immediately take possession of the vessel or vessels for the purpose of foreclosure and sale. The vessel may only be released in accordance with the provisions of Section 13 of this Act, or when the debtor pays the outstanding obligation.
SEC. 15. Foreign Ship Mortgages—As used in Sections 12 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 foreran 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.
SEC. 16. Receiver in Foreclosure; possession by sheriff—In any suit in rem in admiralty for the enforcement of the preferred mortgage lien, the court may appoint a receiver and, in its discretion, authorize the receiver to operate the mortgaged vessel. The sheriff may be authorized and directed by the court to take possession of the mortgaged vessel notwithstanding the fact that the vessel is in the possession or under the control of any person claiming a possessory common law lien.
SEC. 17. Preferred Maritime Lien, Priority, Other Liens—
SEC. 18. Suit in Personam in Admiralty on Default—
SEC. 19. Surrender of Documents; termination of mortgagee's interest; sale of mortgaged vessel—
SEC. 20. Who May Bid in the Foreclosure Sale—The following persons are qualified to bid in the foreclosure sale of the mortgaged vessel:
In case the purchaser is a foreign individual or entity, the Philippine Coast Guard shall, upon presentation of the certificate of sale, cancel the registration of the vessel and issue a certificate to that effect upon request.
SEC. 21. 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.
SEC. 22. Persons Authorized to Procure Repairs, Supplies, and Necessaries—The following persons shall be presumed to have authority from the owner to procure repairs, supplier, towage, use of dry dock or marine railway, and other necessaries for the vessel; The managing owner, ship's husband, master or any person to whom the management of the vessel at the port of supply is entrusted. No person tortiously or unlawfully in possession or charge of a vessel shall have authority to bind the vessel.
SEC. 23. Notice to Person Furnishing Repairs, Supplies, and Necessaries—The officers and agents of a vessel specified in Section 22 of this Decree shall be taken to include such officers and agents when appointed by a charterer, by an owner pro hac vice, or by an agreed purchaser in possession of the vessel; but nothing in this Decree shall be construed to confer a lien when the furnisher knew, or by exercise of reasonable diligence could have ascertained, that because of the terms of a charter party, agreement for sale of the vessel, or for any other reason, the person ordering the repairs, supplies, or other necessaries was without authority to bind the vessel therefor.
SEC. 24. Waiver of Right to Lien—Nothing in this Decree shall be construed to prevent the furnisher of repairs, supplies, towage, use of dry dock or marine railway, or other necessaries, or the mortgagee, from waiving his right to a lien, or in the case of a preferred mortgage lien, to the preferred status of such lien, at any time by agreement or otherwise.
SEC. 25. Existing Mortgages Not Affected; exception—This Decree shall not apply (1) to any existing mortgage, or (2) to any mortgage hereafter placed at any vessel under an existing mortgage, so long as such existing mortgage remains undischarged. The Decree shall, however, apply to mortgages executed pursuant to Presidential Decree No. 214, provided that no vested rights of third parties are affected thereby.
SEC. 26. Rules and Regulations by Philippine Coast Guard and the Maritime Industry Authority—The Philippine Coast Guard and the Maritime Industry Authority are hereby authorized to make such rules and regulations within their respective spheres of jurisdiction, as they may deem necessary for the efficient execution of the provisions of this Decree.
SEC. 27. Port of Documentation—Whenever in the Ship Mortgage Decree of 1978 the words "port of documentation" are used, they shall be deemed to mean the port of registry of the vessel.
SEC. 28. Instruments and Acts Validated—All mortgages of any vessel of any part thereof, and all documentations, recordations, indorsements and indexing thereof, and proceedings incidental thereto made or done, prior to the effectivity of this Decree are declared valid to the extent they would have been valid if the port or ports at which it should have been documented in accordance with law; and this section is declared retroactive so as to accomplish such validations: Provided, That nothing herein contained shall be construed to deprive any person of any vested right.
SEC. 29. Repealing Clause—The provisions of the New Civil Code, the Code of Commerce, the Chattel Mortgage Law, the Revised Rules of Court and of such other laws, decrees, executive orders, rules and regulations which are in conflict or inconsistent with the provisions of this Decree are hereby repealed, amended or modified accordingly. If for any reason, any section, subsection, sentence, clauses or term of this Decree is held to be unconstitutional such decision shall not affect the validity of the other provisions of this Decree.
SEC. 30. Effectivity—This Decree shall take effect upon its approval.
Done in the City of Manila, this 11th day of June, in the year of Our Lord, nineteen hundred and seventy-eight.
(Sgd.) FERDINAND E. MARCOS
President of the Philippines
By the President:
(Sgd.) JUAN C. TUVERA Presidential Assistant