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The real and hypothecary    nature of maritime law

(Article published in the Jul 16, 2008 issue of Manila Standard Today)  

 There is only way I could explain to myself the expressionless mien of the managers-owners of Sulpicio Lines Inc., as seen from snap shots of the hearings now being conducted by various government bodies on the sinking of the M/V Princess of the Stars.  When all the wailing and weeping, blaming and bashing, are said and done, they probably believe, and not without some basis, that they are twice removed from the financial consequences of the mishap.

One line of defense is familiar even to law students: the principle known as the veil of corporate fiction.  Another, and stronger I think because it is a central pillar in the esoteric specialization of admiralty law, is the real and hypothecary nature of maritime law.

 The first is very simple: a stockholder can be made liable for the financial obligations of the corporation only up to the extent of his shareholdings, whether paid in or merely subscribed .  A multi-billionaire stockholder is thus under no legal obligation to lose, beyond his actual and contracted equity, any amount in payment for his bankrupt corporation’s sins. The second is summarized: “no vessel, no liability”.

 The word “real” in the phrase “real and hypothecary” is not the opposite of “unreal”, “fake” or “imaginary.”  It is, instead, rooted in the Old Latin word, “res”, meaning, “thing’.  As used in the admiralty shorthand describing the shipowner’s liability, it targets “the ‘thing”, i.e. the vessel or its value.

 The  “hy-“ in “hypothecary”, on the other hand, should be pronounced distinctly so as not to mistake “hypothecary” for “apothecary,” the latter meaning one who prepares and sells medicines.  When correctly enunciated, “hypothecary” clearly comes from the Medieval Latin “hypothecare”, or to pledge property to answer for debt.
   










     

The admiralty’s central principle thus means that the shipowner’s financial liability is limited to the value of the ship which is deemed pledged to answer for that liability.  Article 837 of the Code of Commerce accordingly provides that “the civil liability incurred by shipowners…shall be understood as limited to the value of the vessel with all its appurtenances and freightage earned during the voyage.” Likewise, all the shipowner has to do to escape liability to third persons for the acts of the captain, is to simply “abandon the vessel with all her equipment and the freight it may have earned during the voyage.” (Art. 587).

This medieval rule, explains Atty. Eduardo F. Hernandez, primary author of Philippine Admiralty and Maritime Law, reviewed in this column on 14 March 2007 under the title “Enduring Repository of An Ancient Romance”, originated in the “prevailing conditions of the maritime trade and sea voyages during the medieval age, attended by innumerable hazards and perils” including the dire lack of immediate and effective communication between ship and shore.

 For this reason, out there in the open sea, the ship captain is the master of all, of both persons and property, with extraordinary powers under the law. Even up to now under the current civil code, the ship captain is authorized perform marriages in articulo mortis.  That is, he is able to grant to a sailor (or passenger) who is at the point of death the status of being married to his or her partner, thus giving him easy passage at the Pearly Gates to the life thereafter should he actually die, as expected, subsequent thereto.

 The ship captain in those times also had powers to end life on earth.  Thus, it is recorded that in August 1520 a mutiny broke out in Magellan's fleet while at the Patagonian seashore, in South America. After he put it down and executed some of the ringleaders, Magellan punished two others, the King of Spain delegate Juan de Cartagena and the priest Pedro Sánchez Reina, by marooning them in that desolate place. Since they had no cell phones to contact their royal patrons and ecceliastical padrinos, they were never heard from again.

 So absolute was the captain’s command over everyone and every fortune, that it became the inpiration  for the last two lines of Invictus, by William Ernest Henley, “I am the master of my fate:/I am the captain of my soul.”  Lost to students of this day and age is the fire in those lines; and the once high school students who used to recite that with heart-throbing animo, now in their corporate offices, are wont to add, sotto voce, “subject to the approval of my board.”  Times have changed.

 But precisely because times have changed, the shipowners, today, ought not be too complacent.  The rule of limited liability of the shipowner, like the veil of corporate fiction, can be pierced and the pointed sword of Lady Justice could then reach the persons of the individual shipowners.  In fact, Philippine Admiralty and Maritime Law cites decisions of the Supreme Court that have already eroded the once vaunted rule of the Middle Ages. 

 For example, in Manila Steamship Co. v. Insa Abdulhanan, et al (G.R. No L-9534, Sept. 29, 1956), the Supreme Court made Lim Hong To, owner of M/L Consuelo V, pay damages to Adbulhaman who lost all his five children when the vessel collided with M/L Bowline Knot, owned by the Manila Steamship Co. Even if after the collision, M/L Consuelo V was considered totally lost, Lim Hong To was held liable because the master and engineer of the sunken vessel were not duly licensed.  Other cases, where the shipowner himself, was negligent, e.g. allowing the vessel to embark inadequately equipped with life-saving apparatus, are cited in the Hernandez magnum opus.

 In the book’s revised edition, certain to be added by my partner Atty. Adrian Hernandez, who is already collating materials for the upcoming revision, is the recent case of Central Shipping Company, Inc. v. Insurance Company of North America (G.R. No. 150751, Sept. 20, 2004).  Then still associate justice, though already progressive thinking, later Chief Justice Panganiban ruled that the doctrine of limited liability “does not apply to situations in which the loss or injury is due to the concurrent negligence of the shipowner and the captain.” 

 The M/V Central Bohol, on 26 July 1990 enroute to Manila in bad weather listed 10 degrees starboard (i.e. right side of the vessel perceived from the point of view of one on the vessel facing the front, called the bow) due to improper storage of her cargo of logs.  Five minutes later, the vessel sunk and the cargo was lost. 

 Quoting the rule in the earlier case of Philippine American General Insurance Co. Inc. v. Court of Appeals (273 SCRA 262) that “closer supervision on the part of the shipowner could have prevented this fatal miscalculation”, the Court in Central Shipping tersely said, “As such, the shipowner was equally negligent.  It cannot escape liability by virtue of the limited liability rule.”

 The shipowner’s negligence, then is the tipping point.  That is the legal point that lawyers are going to tug and tow, in directions, depending on who they are for.  It is the issue to watch out for, in all the reportage and analyses amidst the wreck and wretchedness around the sunken M/V Princess of the Stars.
 

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