PAR T II - MAR ITIM E LAW 341

Lien s
Cha pter - S hip Mor tgag e a nd Mar itime
8

m Ltd . u. M IV
the Shi p Mo rtga ge Dec ree in Cre scen t Petr oleu
Lok Mah esh war i: 38
rmin e
"The vari ous test s used in the U.S. to dete
:
whe ther a mar itim e lien exis ts are the following
itim e
One . "In a suit to esta blis h and enforce a mar
foreign port ,
lien for supp lies furn ishe d to a vess el in a
rt has or will
whe ther such lien exis ts, or whe ther the cou
exer cise juris dict ion, depe nds on the law of
the cou ntry
ch mus t be
whe re the sup plie s wer e furn ishe d, whi
laid dow n in
plea ded and prov ed." This prin cipl e was
the 188 8 case of The Sco tia, reit erat ed in
The Kai ser
1) and in
Wil helm II (1916), in The Wo udr iche m (192
The City of Atla nta (1924).
ogy
Two . The Lau ritz en-R ome ro-R hod itis tril
hod olog ies
of case s, whi ch repl aced such sing le-fa ctor met
as the law of the plac e of supp ly.
whi le
In Lau ritz en v. Lar sen , a Dan ish seam an,
of a ship of
tem pora rily in New York, join ed the crew
ish citiz en.
Dan ish flag and regi stry that is own ed by a Dan
the righ ts of
He sign ed the ship 's artic les prov idin g that
ish law and
the crew mem bers wou ld be gov erne d by Dan
ish Sea men 's
by the emp loye r's con trac t with the Dan
in Hav ana
Uni on, of whi ch he was a mem ber. Whi le
neg lige ntly
and in the cour se of his emp loym ent, he was
dist rict cou rt
inju red. He sued the ship own er in a fede ral
In hold ing
in New Yor k for dam ages und er the Jon es Act.
appl icab le,
that Dan ish law and not the Jone s Act was
the Sup rem e Cou rt ado pted a mu ltip le-c
ont act test
Con gres sion al
to dete rmin e, in the abse nce of a specific
sdic tion 's law
dire ctiv e as to the stat ute' s reac h, whi ch juri
e cons ider ed:
shou ld be appl ied. The following fact ors wer
(1) pla ce of the wro ngf ul act; (2) law
of the flag; (3)
alle gian ce
alle gian ce or dom icil e of the inju red ; (4)
con trac t;
of the def end ant ship own er; (5) pla ce of
(7) law of
(6) ina cce ssib ility of fore ign foru m; and
the foru m.
rem e
Sev eral yea rs afte r Lau ritze n, the U.S. Sup
Cou rt in the case of Rom ero v. Inte rna tion
al Ter min al
seam an's
Ope rati ng Co. agai n cons ider ed a fore ign
s Act and the
pers ona l inju ry clai m und er both the Jone
the fact ors
gen eral mar itim e law. The Cou rt held that

ass upra.
 PUB LIC
342 .ESSENTIALS OF' TRANSPORTATION AND
UTILITIES LAW

lica ble
first announced in the case of Lau ritze n wer e app
und er the
not only to per son al inju ry clai ms aris ing
mar itim e
Jon es Act but to all mat ters aris ing und er
law in gen eral .
suit
Hel leni c Lines, Ltd . v. Rho diti s was also a
aboa a rd
und er the Jone s Act by a Greek seam an inju red
The ship
ship of Gre ek regi stry while in American waters.
its larg est
was oper ated by a Greek corporation which has
ans and
office in New York and anot her office in New Orle
domiciliary
whose stock is more than 95% owned by a U.S.
enga ged in
who is also a Greek citizen. The ship was
of the U.S.
regu larly scheduled runs between various port s
its enti re
and the Middle East , Pak istan , and Indi a, with
inat ing in
income coming from eith er orig inat ing or term
that Greek
the U.S. The cont ract of employment provided
nt would
law and a Greek collective barg aini ng agre eme
and that
apply between the employer and the seam an
ract were
all claims aris ing out of the employment cont
Sup rem e
to be adjudicated by a Greek court. The U.S.
d in the
Cou rt observed that of the seve n fact ors liste
own er
Lau ritz en test , four wer e in favo r of the ship
conclusion
and aga inst juri sdic tion . In arriv ing at the
application
that the Jone s Act applies, it rule d that the
It state d
of the Lau ritze n test is not a mechanical one.
rs mus t be
thus : "[t]he significance of one or more facto
serv ed by
considered in ligh t of the nati onal inte rest
omit ted)
the asse rtion of Jone s Act jurisdiction. (footnote
n was not
Moreover, the list of seve n factors in Lau ritze
er's base of
inte nded to be exh aust ive. xx x [T]he ship own
rmin ing
operations is ano ther factor of imp orta nce in dete
e well may
whe ther the Jone s Act is applicable; and ther
be others."
e tort
The principles enun ciat ed in thes e mar itim
g unp aid
cases have been exte nded to cases involvin
For syth e
supplies and nece ssar ies such as the case s of
ture , and
Inte rna tion al U.K., Ltd . v. MN Rut h Ven
mer ican o.
Com oco Mar ine Ser vice s v. MN El Cen troa
men t
Thr ee. The fact ors pro vide d in Res tate
applied,
(Sec ond ) of Con flict s of Law have also been
the Federal
especially in resolving cases brou ght und er
that in the
Mar itim e Lien Act. The ir appl icati on sugg ests
part ies, the
absence of an effective choice of law by the
the place of
forum cont acts to be considered include: (a)
contract; (c)
contracting; (b) the place of nego tiati on of the
the subject
the place of performance; (d) the location of
, residence,
mat ter of the cont ract ; and (e) the domicile
Lt ----- --·
PART TI - MARITIM E LAW
Ch a pte r 8 - S hip Mortgage a nd Ma rit ime Li e m;

nationali ty , pl ace of incorpora tion and place of bmiin ess

of the parties.
In Gulf Trading and Transportation Co. v.
The Vessel Hoegh Shield, an admiralty action in rem
was brought by an American supplier against a vessel
of Norwegian flag owned by a Norwegian Company and
chartered by a London time charterer for unpaid fuel oil
and marine diesel oil delivered while the vessel was in U.S.
territory. The contract was executed in London. It was held
that because the bunker fuel was delivered to a foreign
flag vessel within the jurisdiction of the U.S., and because
the invoice specified payment in the U.S., the admiralty
and maritime law of the U.S. applied. The U.S. Court of
Appeals recognized the modern approach to maritime
conflict of law problems introduced in the Lauritzen case.
However, it observed that Lauritzen involved a torts claim
under the Jones Act while the present claim involves an
alleged maritime lien arising from unpaid supplies. It made
a disclaimer that its conclusion is limited to the unique
circumstances surrounding a maritime lien as well as the
statutory directives found in the Maritime Lien Statute
and that the initial choice of law determination is
significantly affected by the statutory policies
surrounding a maritime lien. It ruled that the facts
in the case call for the application of the Restatement
(Second) of Conflicts of Law. The U.S. Court gave much
significance to the congressional intent in enacting the
Maritime Lien Statute to protect the interests of American
supplier of goods, services or necessaries by making
maritime liens available where traditional services are
routinely rendered. It concluded that the Maritime Lien
Statute represents a relevant policy of the forum that
serves the needs of the international legal system as well
as the basic policies underlying maritime law. The court
also gave equal importance to the predictability of result
and protection of justified expectations in a particular
field of law. In the maritime realm, it is expected that
when necessaries are furnished to a vessel in an American
port by an American supplier, the American Lien Statute
will apply to protect that supplier regardless of the place
where the contract was formed or the nationality of the
vessel.
The same principle was applied in the case of Swe-
dish Telecom Radio v. MN Discovery I where the
American court refused to apply the Federal Maritime
Lien Act to create a maritime lien for goods and services
 ESSENTIALS OF TRANSPORTATION AND PUBLIC
344 UTILITI ES LAW

supplied by foreign companies in foreign po_rts. In ~his

case, a Swedish company supplied radio eqmpm ent m a
Spanish port to refurbis h a Panam anian vessel damage d
by fire. Some of the contrac t negotiations occurred in
Spain and the agreem ent for supplies betwee n the pa~ies
indicated Swedish company's willingness to submit to
Swedish law. The ship was later sold under a contrac t of
purchase providing for the application of New York law
and was arreste d in the U.S. The U.S. Court of Appeals
also held that while the contacts-based framew ork set forth
in Lauritz en was useful in the analysi s of all maritim e
choice oflaw situatio ns, the factors were geared toward s a
seaman 's injury claim. As in Gulf Tradin g, the lien arose
by operation of law because the ship's owner was not a
party to the contrac t under which the goods were supplied.
As a result, the court found it more approp riate to consider
the factors contain ed in Section 6 of the Restate ment
(Second) of Conflicts of Law. The U.S. Court held that the
primary concern of the Federa l Maritim e Lien Act is the
protection of American supplie rs of goods and services.
The same factors were applied in the case of Ocean
Ship Supply , Ltd. v. MN Leah.
II.
Finding guidanc e from the foregoing decisions, the
Court cannot sustain petition er Crescen t's insisten ce on
the applica tion of P.D. No. 1521 or the Ship Mortga ge
Decree of 1978 and hold that a maritim e lien exists.
First. Out of the seven basic factors listed in the
case of Laurit zen, Philipp ine law only falls under one -
the law of the forum. All other elemen ts are foreign -
Canada is the place of the wrongful act, of the allegiance
or domicile of the injured and the place of contrac t;
India is the law of the flag and the allegian ce of the
defend ant shipow ner. Balanc ing these basic interes ts, it
is inconceivable that the Philipp ine court has any interes t
in the case that outweig hs the interes ts of Canada or India
for that matter.
Second . P.D. No. 1521 or the Ship Mortgage
Decree of 1978 is inappli cable following the factors under
Restate ment (Second) of Conflict of Laws. Like the Federa l
Maritim e Lien Act of the U.S., P.D. No. 1521 or the Ship
Mortga ge Decree of 1978 was enacted primar ily to protect
Filipino supplie rs and was not intende d to create a lien
from a contrac t for supplie s betwee n foreign entities
deliver ed in a foreign port.
...
PART II - MARITI ME LAW 345
Ch Apter 8 - Sh ip Mortgage a nd Maritime Liens

Third. Applying P .D. No. 1521 or the Ship Mortgage

Decree of 1978 and r ule th at a maritime lien exists would
not promote the public policy behind the enactment of the
law to develop the domest ic shipping industry. Opening
up our courts to foreign suppliers by granting them a
maritime lien under our laws even if they are not entitled
to a maritime lien under their laws will encourage forum
shopping.
Finally. The submission of petitioner is not in
keeping with the reasonable expectation of the parties
to the contract. Indeed, when the parties entered into
a contract for supplies in Canada, they could not have
intended the laws of a remote country like the Philippines
to determine the creation of a lien by the mere accident
of the Vessel's being in Philippine territory." (Citations
omitted)

a. The Supreme Court ruled in Crescent Petroleum

Ltd. v. M/V Lok Maheshwari 39 that the basis of the claim
based on a maritime lien should have been established under
Canadian law. The Supreme Court explained that "in light of
the interests of the various foreign elements involved, it is clear
that Canada has the most significant interest in this dispute.
The injured party is a Canadian corporation, the sub-charterer
which placed the orders for the supplies is also Canadian, the
entity which physically delivered the bunker fuels is in Canada,
the place of contracting and negotiation is in Canada, and the
supplies were delivered in Canada."
3.WHO MAY CONSTITUTE PREFERRED SIDP
MORTGAGE. Any citizen of the Philippines, or any association
or corporation organized under the laws of the Philippines, at least
sixty per cent (60%) of the capital of which is owned by citizens of
the Philippines may 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. 40
3.01. PURPOSE. The loan secured by the ship mortgage
must be for purpose of financing the construction, acquisition,
purchase of vessels or initial operation ofvessels. 41 The purpose
is important in determining the presence of preference.

39
Supra .
408
ection 17 PD 1521
41 s '
ection 2, PD 1521. •
::l4n ,,: ~~mNTlALS OF THANH POH'l' A'l 'JON AND Pl rnuc
lJTII.l Tll•:S I.AW

3.02. FORMAL REQ UIRE MEN TS. The ship mo-rtgage

must be recor ded or regis tered , otherw iRe the same is void
except as to the partie s or their heir and assig ns or persons
with actua l notice. 42
a. The ship mortg age shall be consi dered a "preferred
mortgage" or shall have a prefe rred statu s only if the foJlowing
requi reme nts unde r Secti on 4 of the SMD are complied. In
other words, it is requi red that:
(1) The mortg age is recorded;
(2) An affidavit is filed with the recor d of such
mortg age to the effect that the mortg age is made in good
faith and witho ut any desig n to hinde r, delay , or defraud
any existi ng or futur e credi tor of the mortg agor or any
lien or of the mortg aged vessel; and
(3) The mortg age does not stipu late that the
mortg agee waive s the prefe rred statu s there of.
43

3.03. MARINA RUL ES. The Mari time Indus try Author-
ity (MARINA) now admi niste rs the anno tation and/o r cancel-
lation of any mortg age over vessels. Thus , the MARINA pro-
mulg ated Mem orand um Circu lar No. 100 dated April 6, 1995
presc ribin g the guide lines for the annot ation /canc ellati on of
mortg ages and trans fer of right s and other encum branc es of
vesse ls. The Circu lar appli es "to all vesse ls duly registered
with the Mari time Indu stry Auth ority with docu ment s which
evide nce owne rship or docu ment s direc tly/in direc tly affecting
the title of the vesse l."44 The Circu lar conta ins the following
specific guide lines unde r Part III there of:

A. DOCUMENTARY REQUIREMENTS
The following documentary requirements must be
submitted to the MARINA Central Office or the Maritime
Regional Offices when applying for the annotation/
cancellation of mortgages and transf er of rights and other
encumbrances of vessels:
1. Lette r of Intent/Duly Accomplished Appli-
cation Form;
2. Duly notarized mortgage contract;

42
Section 3, PD 1521.
Sec. 4, SMD; Polian d Indust rial Ltd. v. NDC, supra.
43

Part II, MARINA Memo randum Circul ar No. 100 dated April 6, 1995.
44

I
 PART II - MARITIME LAW 347
Chapter 8 - Ship Mortgage and Maritim e Lien s

3. Proof of payment of documentary stamp

tax with BIR; and
4. Original Certificate of Ownership (CO)
and Certificate of Vessel Registry (CVR); or Certifi-
cate of Number, if applicable.
B. ANNOTATIONOFMORTGAGEANDTRANS-
FER OF RIGHTS AND OTHER ENCUMBRANCES OF
VESSELS
The Maritime Industry Authority (MARINA) shall
record all mortgages, transfer of rights and other encum-
brances duly delivered to it in the order of their recep-
tion in the book(s) to be kept for that purpose and shall be
indexed to show:
1. The name of the vessel
2. The names/postal address of the parties to
the mortgage
3. The time and date of reception of
instrument
4. The interest of the mortgagor in the vessel
being mortgaged
5. The date of the mortgage contract
6. The amount and date of maturity of the
mortgage
7. Name, nationality and residence of the
owner of the vessel
8. Any material change of condition in
respect to any of the preceding items.
Annotation of the mortgages shall likewise be
reflected at the back of the CVR and CO or CN whenever
applicable. '
C. CANCELLATION OF MORTGAGE
Annotation of the mortgages, transfer of rights and
other encumbrances shall be cancelled from the book
under the following circumstances:
1. Full payment of mortgage debt
ii. Total loss or constructive total loss of the
mortgaged vessel
iii. Foreclosure Order
iv. Court Order to delete all registered
mortgages
348 ESSENTI ALS OF TRANSPORTAT ION AND P UBLIC
UTILIT IES LAW

4. MORTGAGE OF VESSEL WITH OTHER PRO-

PERTIES. The Ship Mort gage Decree provides for rules that
govern cases wh en the vessel is mortgaged with another vessel or a
non-maritime property.
4.01. MORTGAGE WITH NON-MARIT IME PRO-
PERTY. In the case of a mortgage which includes property
other than a vessel, the mortgage shall not be held a preferred
mortgage unless the mortgage provides for the separate dis-
charge of such property by the payment of a specified portion
of the mortgage indebtedness. 45 The property whose separate
discharge must be provided for is the non-maritime property.46
a. If a preferred mortgage so provides for the separate
discharge, the amount of the portion of such payment shall be
endorsed upon the documents of the vessel. 47
b. However, these rules do not apply to mortgage over
the "vessel and her freight" because the freight in this situation
is considered part of the vessel for such purpose. 48
c. It is more advisable therefore "to take separate
mortgages on the maritime and non-maritime property''
because there is no discernible advantage in the composite
mortgage, since there must be separate recordation of the
ship and the non-maritime property and foreclosure actions on
default.49
4.02. FLEET MORTGAGE . There may be mortgage on
two or more vessels. The mortgage may provide for separate
discharge of each vessel by the payment of a portion of mortgage
indebtedness . The amount of such portion of such payment
shall be endorsed upon the documents of the vessel. 50
a. In case such mortgage does not provide for the
separ ate discharge of a vessel, the mortgage may nonetheless
be a preferred mortgage. 51 However, where there is no such
separ ate discharge and the vessel is to be sold upon the order of a
court of competent jurisdiction in a suit in rem in admiralty, the
court shall determine the portion of the mortgage indebtedness

45
Section 4 [e], P .D. 1521.
46 Giles and Black, Jr., p . 708.
47
Section 4 [e] P .D. 1521.
48
Giles and Black, Jr., p . 708.
49
Giles an d Black, Jr., p . 709.
50 Section 4 [b], P .D . 1521.

5 1 Giles and Black, Jr., p . 710.

I
 PART II - MARI TIME LAW
Chapter 8 - Ship Mortg age a nd Ma ritime Liens 349

incre ased by 20 per centu m (1) which , in the opinion of the

court , the appro xima te value of all the vessels covered by the
mortgage, and (2) upon the paym ent of which the vessel shall
be disch arged from the mortg age. 02
5. ARREST AND FORECLOSURE. Upon defau lt of
the obligor, the prefe rred ship mortg aged may be foreclosed in
a suit in admi ralty. 53 Upon filing of a petiti on for foreclosure ,
the Cour t may order the arres t of the vesse l upon ex-pa rte
appli catio n duly supp orted by an affida vit of a perso n who
knows the facts and upon filing of a bond. 54
a. Fore closu re is only an altern ative reme dy. The
mortg agee may likew ise avail of the altern ative reme dy of
specific perfo rman ce in a suit in personam in admi ralty . 55

52
Section 4 [f1, P.D. 1521.
53
Section 10, P .D. 1521.
::section 11 , P.D. 1521.
Section 18, P.D. 1521.