Forms and Effects of Charter Parties

What is a Charter Party Contract?

Definition; as common carrier

A charter party is a contract by virtue of which the owner or agent of a vessel binds himself to transport
merchandise or persons for a fixed price. It is a contract by which the owner or agent of the vessel leases
for a certain price the whole or a portion of the vessel for the transportation of goods or persons from one
port to another. Towage is not a charter party; instead it is a contract for the hire of services by virtue of
which a vessel is engaged to tow another vessel from one port to another for a consideration

It is a contract whereby the whole or part of the ship is let by the owner to a merchant or other person for a
specified time or use for the conveyance of goods, in consideration of the payment of freight. (Caltex v.
Sulpicio Lines, G.R. No. 131166, Sept. 30, 1999)

Who are the Parties involved?

1. Ship owner or ship agent

2. Charter

What are the classes of Charter Parties?

1. as to extent of vessel hired

(a) total
(b) partial - the charterer does not as a rule acquire the right to fix the date when the vessel should
depart, unless such right is expressly granted in the contract

2. as to time
(a) until a fixed day or for a determined number of days or month
(b) for a voyage

3. as to freightage
(a) for a fixed amount for the whole cargo
(b) for a fixed rate per ton
(c) for so much per month

What are the General Categories Charter Parties? (Maritime Agencies and Services, INC v. Court of
Appeals et. al. G.R. No. 77638 July 12, 1990)

1. Bareboat or demise charter - it involves the transfer of full possession and control of the vessel for the
period covered by the contract, the character obtaining the right to use the vessel and carry whatever cargo
it chooses, while maintaining and maintaining the vessel as well. Liable for damages:
charterer (acts as a private carrier)
2. Time charter - it is a contract to use the vessel for a particular period of time, the character obtaining the
right to direct the movements of the vessel during the chartering period, although the owner retains
possession. It is considered a contract of affreightment. (acts as a common carrier)

3. Voyage charter - it is a contract for the hire of a vessel for one or a series of voyages usually for the
purpose of transporting goods for the charterer. The voyage charter is a contract of affreightment and is
considered a private carriage. In a contract of affreightment the ship owner is the one liable for damages.
(acts as a common carrier)

4. Owner Pro Hac Vice - demise charterer to whom the owner of the vessel has completely and
exclusively relinquished possession, command and navigation of the vessel. In this kind of charter, the
charterer mans and equips the vessel and assumes all responsibility for its navigation, management and
operation. He thus acts as the owner of the vessel in all important aspects during the duration of the charter.

Articles on Forms and Effects of Charter Parties:

Article. 652 – A charter party must be drawn in duplicate and signed by the contracting parties, and when
either does not know how or is not able to do so, by two witnesses at his request.

The charter party shall include, besides the conditions freely stipulated, the following statements:
1. The kind, name, and tonnage of the vessel.
2. Her flag and port of registry.
3. The name, surname and domicile of the captain.
4. The name, surname, and domicile of the ship agent, if the latter should make the charter
party.
5. The name, surname, and domicile of the charterer; and if he states that he is acting by
Commission, that of the person for whose account he makes the contract
6. The port of loading and unloading.
7. The capacity, number of tons or weight, or measure which they respectively bind
themselves
To load and transport, or whether it is the total cargo.
8. The freightage to be paid, stating whether it is to be fixed amount for the voyage or so
much per month, or for the space to be a fixed amount for the voyage or so much the space
to be occupied or for the weight or measure of the goods of which cargo consists, or in any
other manner whatsoever agreed upon.
9. The amount of primage to be paid the captain.
10. the days agreed upon for the loading and unloading.
11. The lay days and extra lay days to be allowed and the rate of demurrage.

What are the Requisites of a Valid Charter Party?

1. Consent of the contracting parties

2. Existing vessel which should be placed at the disposition of the shipper
3. Freight
4. Compliance with Article 652 of the Code of Commerce.

Article. 653 – If the freight 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, which shall be the
only instrument with regard to the freight to determine the rights and obligations of the ship agent, of the
captain, and of the charter.
Article. 654 – The charter parties executed with the intervention of a broker, who certifies to the authenticity
of the signatures of the contracting parties made in his presence made in his presence, shall be full of
evidence in court; if they should be conflicting that which agrees with the one which the broker must keep
in his registry, if kept in accordance with the law, shall govern.

The contracts shall also be admitted as evidence, even though a broker has not taken part
therein, if the contracting parties acknowledge the signatures of the same as their own.

Should no broker have taken part in their charter party and the signatures are not
acknowledged, doubts shall be decided by what is provided for in the bill of lading, and in the absence
thereof, by the proofs submitted by the parties.

Important: Definition of Bill of Lading - a detailed list of a shipment of goods in the form of a receipt
given by the carrier to the person consigning the goods.

Article. 655 – Charter parties executed by the captain in the absence of the ship agent shall be valid and
effective, even though in executing them he should have acted in violation of the orders and instructions of
the ship agent or shipowner; but the latter shall have a right of action against the captain to recover damages.

Article 656 – If in the charter party the time in which the loading and unloading are to take place is not
stated, the customs 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 provision 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 may
have elapsed in loading and unloading.

Article 657 – If during the voyage the vessel should be rendered unseaworthy, the captain shall be obliged
to charter at his expense another one In good condition to take the cargo to its destination, for which purpose
he shall be obliged to look for a vessel not only at the port of arrival but also in other ports within a distance
of 50 kilometers.

If the captain, through indolence or malice, should not furnish a vessel to take the cargo to
its destination the shippers, after a demand of the captain to charter a vessel within an inextendible period,
may charter one and apply to the judicial authority for the summary approval of the charter party which
they may have made.

The same authority shall be judicially compel the captain to confirm the charter made by
the shippers for his account and under his responsibility.

If the captain, notwithstanding his efforts, should not find a vessel to charter, he shall
deposit the cargo at the disposal of the shippers, to whom he shall communicate the facts on the first
opportunity the freight being regulated in such cases by the distance covered by the vessel, with no right to
any indemnification whatsoever.

Article 658 – The freightage shall accrue according to the conditions stipulated in the contract, and should
they not be specific, or should they be ambiguous, the following rules shall be observed:

1. If the vessel has been chartered by months or by days, the freightage shall begin to run
from the day the loading of the vessel has begun.
2. In charters made for a fixed period, the freightage shall begin to run from that very day.
 3. If the freightage is charged according to weight, the payment shall be made according to
the gross weight, including the containers, such as barrels or any other objects containing
the cargo.

Article 659 – The merchandise sold by the captain to pay for the necessary repairs to the hull, machinery
or equipment, or for unavoidable and urgent requirements, shall pay freightage.

The price of this merchandise shall be fixed according to the success of the voyage, namely;

1. If the vessel should arrive safely at the port of destination, the captain shall pay the price
which the sale of merchandise of the same kind brings at that port.
2. If the vessel should be lost, the captain shall pay the price said merchandise would have
brought in the sale.

The same rule shall be observed in the payment of the freightage which shall be in full if the vessel
arrives at her destination, and in proportion to the distance covered if she should be lost before arrival.

Article 660 – Merchandise jettisoned for the common safety shall not pay freightage; but its value shall be
considered as general average, and shall be computed in proportion to the distance covered when it was
jettisoned.

Note: Jettisoning is the action of removing or discarding goods for the common safety of the ship, the
passengers/crews and the goods.

What is the Jason Clause?

A Stipulation in a charter party that in case of a maritime accident for which the shipowner is not responsible
by law, contract or otherwise, the cargo shippers, consignees or owners shall contribute with the shipowner
in general average. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)

What is the Paramount Clause?

It is a clause in a charter party providing that the COGSA (The Carriage of Goods by Sea Act) shall apply,
even though the transportation is domestic, subject to the extent that any term of the bill of lading is
repugnant to the COGSA (The Carriage of Goods by Sea Act) or applicable law, then to the extent thereof
the provision of the bill of lading is void. (Pandect of Commercial Law and Jurisprudence, Justice Jose
Vitug, 1997 ed.)

Article 661 – Neither shall merchandise which was lost by reason of shipwreck or stranding, nor that seized
by pirates or enemies, pay freightage.

If the freightage should have been paid in advance, it shall be returned, unless there was an
agreement to the contrary.

Article 662 – If the vessel or the merchandise should be recovered, or should the goods of the shipwreck
be salvage, the freightage corresponding to the distance covered by the vessel transporting the cargo shall
be paid; and should the vessel be repaired, and transport said merchandise to the port off destination, the
full freightage shall be paid, without prejudice to what may be due by reason of the average.
Article 663 – Merchandise which is damaged or reduced on account of its own defects or bad quality and
condition of the packing, or by reason of any accidental cause, shall pay full freightage and as stipulated in
the charter party.

Article 664 – The 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.

Article 665 – The cargo shall be specially liable for the payment of the freightage expenses and duties
arising therefrom, which must be reimbursed by the shippers, as well as for the part of the general average
which may be due. But it shall not be legal for the captain to delay unloading on account of fear that the
said obligation may not be complied with.

Article 666 – The captain may request the sale of the cargo to the amount necessary to pay the freightage,
expenses, and averages due him, reserving the right to demand the balance due him therefor if the proceeds
of the sale should not have sufficed to cover his credit.

Article 667 – The goods loaded shall be liable in the first place for their freightage and expenses during
twenty days, to be counted from the date of their delivery or deposit. During this period, the sale of the
same may be requested, even though there be other creditors and the case of insolvency of the shipper or
consignee should occur.

This right cannot be made use of, however, on the goods which after being delivered, were turned
over to a third person without malice on the part of the latter and for a valuable consideration.

Article 668 – If the consignee should not be found or should refuse to receive the cargo, the judge or court,
at the instance of the captain, shall be order its deposit and the sale of the merchandise that may be necessary
to pay the freightage and other expenses on the same.

The sale shall likewise take place when the goods deposited run the risk of deteriorating, or by
reason of their condition or for other reasons the expenses of preservation and custody should be
disproportionate to the value thereof.
 IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE SUBJECT TRANSPORTATION LAW

A REPORT ON FORMS AND EFFECTS OF CHARTER PARTIES

SAINT LOUIS COLLEGE

CITY OF SAN FERNANDO LA UNION
COLLEGE OF LAW

SUBMITTED TO: HON. VICTOR CONCEPCION

SUBMITTED BY: JOHN MACUSI

OCTOBER 26, 2017