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Commentaries on American Law (1826-30)

Chancellor James Kent

LECTURE 49
Of Maritime Loans

THE contract of bottomry and respondentia are maritime loans of a very high and privileged nature, and they are always upheld by the admiralty with a strong hand, when entered into bona fide, and without any suspicion of fraud. The principle on which they are founded and supported is of great antiquity, and penetrates so deeply into it, that Emerigon says its origin cannot be traced. It was borrowed by the Romans from the laws of the ancient Rhodians, and it is deeply radicated in the general maritime law of Europe, from which it has been transplanted into the law of this country. The object of hypothecation bonds is to procure the necessary supplies for ships which happen to be in distress in foreign ports, where the master and owners are without credit, and in cases in which, if assistance could not be procured by means of such instruments, the vessels and their cargoes must be left to perish. If the lender of money on a bottomry or respondentia bond, be willing to stake the money on the safe arrival of the ship or cargo, and to take upon himself, like an insurer, the risk of sea perils, it is lawful, reasonable and just, that he should be authorized to demand and receive an extraordinary interest to be agreed on, and which the lender shall deem commensurate to the hazard he runs.1

A bottomry bond is a loan upon the ship and freight, and is in the nature of a mortgage, and covers the whole freight of the voyage, from the port of departure to the port of destination. A respondentia bond is a loan upon the pledge of the cargo, though an hypothecation of both ship and cargo may be made in one instrument; and, in some cases, it is only a personal obligation on the borrower, and is not a specific lien on the goods, and amounts, at most, to an equitable lien on the salvage, in case of loss.2 The condition of the loan is the safe arrival of the subject hypothecated; and the entire principal, as well as interest, is at the risk of the lender during the voyage. It may be defined to be an agreement by which the lender lends money to the borrower, upon condition that if the subject pledged be lost, by a peril of the sea, the lender shall not be repaid, except to the extent of what remains; and if the subject arrives safe, or if it shall not have been injured, except by its own defect, or the fault of the master or mariners, the borrower must return the sum borrowed, together with the maritime interest agreed on. This is the definition of the contract given by Pothier;3 and it was taken from the Roman laws, and has been adopted by Emerigon, and he says the definition is given in nearly the same terms by all the maritime jurists.4

Money may also be lawfully loaned at any rate of interest, upon the mere hazard of a specific voyage, to be mentioned in the contract, without any security either upon the ship or cargo. But this last species of maritime loan, depending upon the event of the voyage, has a tendency to introduce wagering and usurious contracts, and it has been restrained in England, by the statute of 19 Geo. II c. 37. as to East India voyages. If the borrower has no effects on board, or, having some, he borrows much beyond their value, it will afford strong ground to suspect fraud, and that the voyage will have an unfortunate end.5 Such loans were entirely suppressed in France, by the marine ordinance of 1681. They were considered to be wagers, in the form of bottomry contracts; and it was declared, that in case of loss, the borrower upon goods should not be discharged without proving that he had goods on board at the time of the loss, on his own account, to the amount of the sum lent.6 The same prohibition was continued in the commercial code, and the loan on bottomry or at respondentia is valid to the extent only of the value of the subject matter on which the loan is effected.7 Sergeant Marshall says,8 that there is no common law decision that sanctions such a loan, and he considers it to be a gambling contract. The weight of authority is, however, in favor of the validity of these maritime loans, where nothing is hypothecated.9 The lender runs the risk of the voyage, and he receives extraordinary interest by way of compensation. The contract is not usurious, for the principal loaned is put at risk.10

The general rule is, that the power of the master to take up money upon bottomry or respondentia, exists only after the voyage has commenced, and it is to be exercised in some foreign port where the owner does not reside.11 But it is not indispensable to the validity of an hypothecation bond, that the ship or cargo should be in a foreign port. The law does not look to the mere locality of the transaction. If forced into a port of the same country in which the owner resides, the master may hypothecate the ship and cargo, in a case of extreme necessity, and when he had no opportunity or means, or it was extremely difficult, to communicate with the owners. Occasions may arise in which the different ports of the same country may be as much separated and cut off from all communication with each other, as if they were situated in distant parts of the globe.12

There is great analogy between the contracts of bottomry and insurance. They are frequently governed by the same principles, though each of them has a character peculiar to itself. They contribute in different proportions to the facility and security of maritime commerce; but the immense capitals now engaged in every branch of commerce, and the extension of marine insurance, has very essentially abridged the practice of such loans. The necessity of the loan must be shown, and that the master had no other means of raising the money at marine interest; and when that fact is established, the misapplication of it by the master, without the knowledge and assent of the lender, will not affect its validity.13 The marine interest depends entirely upon the risk, and therefore if the proposed voyage be abandoned before the risk has attached, the contract is turned into a simple and absolute loan at ordinary legal interest. After the voyage has commenced, and the loan has been for a moment at hazard, though the vessel be shortly forced back, by the perils of the sea, into the port of departure, and the voyage broken up, the lender is entitled to his principal, with the maritime interest, for the whole had been put at hazard.14 The same principle of necessity, which upholds a bottomry bond, entitles a bond of a later date, fairly given at a foreign port, under a pressure of necessity, to priority of payment over one of a former date; notwithstanding his is contrary to the usual rule in other cases of security.15 The equity of it consists in this, that the last loan furnished the means of preserving the ship, and without it the former lenders would, entirely have lost their security, and therefore it supersedes a prior mortgage as well as any other prior lien.16 The bottomry bond is also to be paid before any prior insurance.17 The bottomry bond cannot be made to cover advances made upon the personal security of the borrower, and not upon the exclusive security the ship; but taking bills of exchange at the same time, by way of collateral security, does not exclude the bottomry bond, nor diminish its solidity.18

The perils which the lender on bottomry runs, are usually specified in the bond; and, according to the forms in common use, they are essentially the same as those against which the underwriter, in a policy of insurance, undertakes to indemnify. By the French law, the lender can insure the money lent, for he runs the risk of it. He can insure the principal, though not his maritime interest.19 The respondentia bonds in Philadelphia, are said to be peculiar. The lender is entitled to the benefits of salvage, and is liable for general and particular average. They extend to perils by fire, enemies, men of war, or any other casualties.20 There is not, in respect to the contract, any constructive total loss. Nothing but an utter annihilation of the subject hypothecated, will discharge the borrower on bottomry.21 The property saved, whatever it may be in amount, continues subject to the hypothecation. The lender can look only to what is saved; and if that be not equal to the value of the loan, the lender must bear the loss of the residue, and he cannot recover the deficiency of the borrower. By the general marine law, the lender on bottomry is entitled to be paid out of the effects saved, so far as those effects go, if the voyage be disastrous.22

The position laid down by Lord Mansfield, and afterwards by Lord Kenyon,23 that the lender on bottomry was not liable to contribute, in case of a general average, has been much and justly questioned in the elementary works.24 It is contrary to the maritime law of France, and of other parts of Europe. The new French law, contrary to the ordinance of 1681, charges the lender with simple average, or partial losses, unless there be a positive stipulation to the contrary; but such a stipulation, to exempt him from gross or general average, would be void, and contrary to natural equity.25 The reasoning of Emerigon is conclusive in favor of the right of making the lender chargeable with his equitable proportion of an average contribution. If he owes the preservation of his money lent, to the sacrifice made by others for the preservation of the ship and cargo, why should he not contribute towards a jettison, ransom, or composition, made for the common safety? If no such sacrifice had been made, he would have lost his entire loan, by the rapacity of pirates, or the violence of the storm.

If the ship or cargo be lost, not by the perils of the sea, but by the default of the borrower or master, the hypothecation bond is forfeited, and must be paid. The lender, who is, in effect, an insurer, does not, as in ordinary cases of insurance, assume the risk of barratry, or loss by the fraud or misconduct of the borrower or his agents.26 And the doctrine of seaworthiness, deviation, and the necessity of diligence and correct conduct on the part of the borrower, are equally applicable to this contract, as to that of insurance. The lender is not to bear losses proceeding from the want of seaworthiness, or from unjustifiable deviation, or from the fault of the borrower, or the inherent infirmity of the cargo. Nor does he run the risk of the goods shipped on board another ship without necessity.27

These maritime loans may be safely effected in a fair and proper case, as we have already seen, at the port of destination, as well as at any other foreign port.28 So, the consignee of the cargo, and even the agent of the owner of the ship, under special circumstances, may take a bottomry bond, by way of security for advances made by him.29 The owner himself may also execute a bottomry bond abroad, and it will be enforced in our American Admiralty Courts, which have undoubted jurisdiction over such contracts.30

It has been made a question, whether a loan on bottomry or respondentia be good, if the ship or goods be already at sea when it is effected, inasmuch as the motives to the loan are supposed to have ceased after the ship’s departure. Valin is in favor of the validity of the loan, and he considers that the presumption is, either that the money has been usefully employed in the things put at risk, or in paying what was due on that account; and this reasoning is deemed solid by Marshall, notwithstanding it stands opposed to the high authority of Emerigon.31 It has, likewise, been recently sanctioned by the decision of the Supreme Court of the United States, who have adjudged that it is not necessary that a respondentia loan should be made before the departure of the ship on the voyage, and that it may be made after the goods ate at risk. Nor is it necessary that the money should be employed in the outfit of the vessel, or invested in the goods on which the risk is run. It is sufficient that the risk of the voyage be substantially and really taken, and the advance made in good faith for a maritime premium. The lender is not presumed to lend upon the faith of any particular appropriation of the money; and if it were otherwise, his security could not be avoided by any misapplication of the fund, where the risk was bona fide run upon other goods. The loan may be made, and the risk taken, upon the usual footing of policies of insurance, lost or not lost, and precisely as if the ship was then in port; and if, before the hypothecation be given, the property be actually lost by any of the perils enumerated in it, the loss must be borne by the lender.32

After the risk has ceased, by the safe arrival of the ship, marine interest ceases, and gives place to the ordinary legal interest, on the aggregate amount of the debt due, consisting of the money lent with maritime premium.33 The ordinary interest begins when the marine interest ceases; and Boulay Paty follows the authority of Emerigon, and of the recent decisions in support of this rule, and in opposition to the doctrine of Pothier and Pardessus, who insist, that no interest whatever accrues between the cessation of the maritime interest, and the judicial demand of the debt.

The French code34 prohibits all loans in the nature of bottomry or respondentia, upon seamen’s wages or voyages. A sailor is not generally in a situation to expect any great profit, which would justify a loan upon maritime interest, and wages are too slender a basis for a maritime loan, and the provision is dictated by sound policy. The English and American Courts of Admiralty have a broad equity jurisdiction over such contracts. The bottomry bond may be good in part and bad in part; and if the premium has been unduly enhanced from a knowledge of the master’s necessities, the court of admiralty, which acts ex aequo et bono, may moderate it, or refuse to ratify it.35 But if marine interest has not been stipulated, no court can supply the omission, and it will be taken to be a contract upon ordinary interest; for no new obligation can be inferred or reasoned out, by a commentary on the contract itself.36


NOTES

     1.    Dig. 22. 2. De nautico foenore. Code 4. 33. Ibid. Emerigon, h. t. ch. 1. sec. 1. has collected all that the roman law had said on the subject. See also Lord Stowell, in the case of the Alexander, 1 Dodson’s Adm. Rep. 278. The Augusta, ibid. 283. The Hero, 2 ibid. 139.
     2.    Busk v. Fearon, 4 East’s Rep. 319.
     3.    Contrat la grosse, n. 1.
     4.    Emerigon, Traité des Contrats à la grosse, ch. 1. sec. 2.
     5.    Casaregis, dis. 62, n. 7. Guidon, ch. 19, sec. 10.
     6.    Ord. de la Mar. tit. des contracts à grosse aventure, art. 14. ibid. art. 3.
     7.    Code de Commerce, art. 317.
     8.    Condy’s Marshall, vol. ii, 745.
     9.    2 Blacks. Com. 459. Molloy, b. 2. ch. 10. sec. 13.
   10.    Soome v. Gleen, 1 Sid. Rep. 27.
   11.    Condy’s Marshall, vol. ii. 741. b. c. Reade v. Com. Ins. Co., 3 Johns. Rep. 306. 1 Emerigon, tom. ii. 424, 436. Code de Commerce, art. 321.
   12.    La Ysabel. 1 Dodson’s Rep. 273.
   13.    The Jane, 1 Dodson’s Rep. 461. Emerigon, tom. ii. 434.
   14.    Boulay Paty, Cours. de droit com., tom. iii. 74-76, 167-169.
   15.    The Rhadamanthe, 1 Dodson’s Rep. 204. The Betsey, ibid. 289. The Jerusalem, 2 Gallison’s Rep. 350. Code de Commerce, art. 323.
   16.    The Sloop Mary, 1 Paine’s Rep. 671.
   17.    Boulav Paty. tom. 3. 228, 232.
   18.    The Augusta, 1 Dodson’s Rep. 283. The Jane, ibid. 461.
   19.    Guidon, ch 18. sec. 2. note, by Cleirac. Roccus, De Navibus, n. 51. Valin, tom. ii. 12. Appleton v. Crowninshield, 3 Mass. Rep. 443. Code de Commerce, art 347.
   20.    Insurance Company of Pennsylvania v. Duval, 8 Serg. & Rawle, 138. By the Code de Commerce, art. 380, the lender, on bottomry, and respondentia, is also chargeable for general and for particular average.
   21.    Thompson v. The Royal Exchange Assurance Company, 1 Maule & Selw. 30.
   22.    Parker, J., and Sewall, J., in Appleton v. Crowninshield, 3 Mass. Rep. 448. Wilmer v. Smilax, 2 Peters’ Adm. Rep. 295, note. Valin’s Com. tom. ii. 12. Code de Commerce, art. 327. Magens on Insurance’ vol. ii. 52. 56. 196-8. 430. Emerigon, tom. ii. 544. 547. Phillips on Insurance, 301.
   23.    Joyce v. Wiliamson, and Walpole v. Ewer. —Park on Ins. 6th edit. 563. 565.
   24.    See Condy’s Marshall, vol. ii. 760, 761. Phillips on Ins. 301, 2.
   25.    Ord. de la Mar. h. t. art. 16. Code, art. 330. Emerigon, Traité des Contrats à la grosse, ch. 7. sec. 1.
   26.    Roccus, De Navibus, n. 51. Western v. Wildy, Skinner, 152. Ord. de la Mar. tit. Contrats à la grosse, art. 12. Emerigon, tom. ii. 509-512. Code de Commerce, art. 326.
   27.    Condy’s Marshall, vol. ii. 753-758. Boulay Paty, tom. 3. 158-164, 171-176. Ibid. 192.
   28.    3 Johns Rep. 352.
   29.    The Alexander, 1 Dodson, 178. The Hero, 2 ibid. 139.
   30.    The Sloop Mary, 1 Paine’s Rep. 671.
   31.    Valin’s Com. tom. i. 366. Emerigon, tom. ii. 484. Condy’s Marshall, vol. ii. 747, a.
   32.    Conard v. The Atlantic Ins. Co., 1 Peters’ Rep. 386.
   33.    Emerigon, t. 2. 414. M. Pardessus, Cours de Droit Commer. t. ii. 273. Boulay Paly. t. iii. 80-89. The French law declares, and it is also the doctrine of Casaregis, that a bottomry contract, if made payable to order, or bearer, is negotiable like a bill of exchange, and is to be dealt with and protested in like manner. Casaregis, disc. 55. Boulay Paty, tom iii. 97. Code de Commerce, art. 313.
   34.    Code de Commerce, art. 319.
   35.    1 Dodson, 277, 283. The Ship Packet, 3 Mason, 255.
   36.    Pothier, Traité du Pret a la Grosse, n. 19. See, for further in formation on the subject of maritime loans, Emerigon’s Essay on Maritime Loans, which is the most complete treatise extant on the subject. The substance of it has been ably incorporated into the work of M. Boulay Paty, on a Course of Maritime Commercial Law, and it has been closely and accurately translated by John S. Hall, Esq. of Baltimore.