BOTTOMRY, a maritime contract by which a ship (or bottom) is hypothecated in security for money borrowed for expenses incurred in the course of her voyage, under the condition that if she arrive at her destination the ship shall be liable for repayment of the loan, together with such premium thereon as may have been agreed for; but that if the ship be lost, the lender shall have no claim against the borrower either for the sum advanced or for the premium. The freight may be pledged as well as the ship, and, if necessary, the cargo also. In some cases the personal obligation of the shipmaster is also included. When money is borrowed on the security of the cargo alone, it is said to be taken up at respondentia; but it is now only in rare and exceptional cases that it could be competent to the shipmaster to pledge the cargo, except under a general bottomry obligation, along with the ship and freight. In consideration of the risks assumed by the lender, the bottomry premium (sometimes termed maritime interest) is usually high, varying of course with the nature of the risk and the difficulty of procuring funds.
A bottomry contract may be written out in any form which sufficiently shows the conditions agreed on between the parties; but it is usually drawn up in the form of a bond which confers a maritime lien (q.v.). The document must show, either by express terms or from its general tenor, that the risk of loss is assumed by the lender, - this being the consideration for which the high premium is conceded. The lender may transfer the bond by indorsation, in the same manner as a bill of exchange or bill of lading, and the right to recover its value becomes vested in the indorsees. (See Bond.)
According to the law of England, a bottomry contract remains in force so long as the ship exists in the form of a ship, whatever amount of damage she may have sustained. Consequently, the "constructive total loss" which is recognized in marine insurance, when the ship is damaged to such an extent that she is not worth repairing, is not recognized in reference to bottomry, and will not absolve the borrower from his obligation. But if the ship go to pieces, the borrower is freed from all liability under the bottomry contract; and the lender is not entitled to receive any share of the proceeds of such of the ship's stores or materials as may have been saved from the wreck. Money advanced on bottomry is not liable in England for general average losses. If the ship should deviate from the voyage for which the funds were advanced, her subsequent loss will not discharge the obligation of the borrower under the bottomry contract. If she should not proceed at all on her intended voyage, the lender is not entitled to recover the bottomry premium in addition to his advance, but only the ordinary rate of interest for the temporary loan. As the bottomry premium is presumed, in every case, to cover the risks incurred by the lender, he is not entitled to charge the borrower with the premium which he may pay for insurance of the sum advanced, in addition to that stipulated in the bond.
The contract of bottomry seems to have arisen from the custom of permitting the master of a ship, when in a foreign country, to pledge the ship in order to raise money for repairs, or other extraordinary expenditures rendered necessary in the course of the voyage. Circumstances often arise, in which, without the exercise of this power on the part of the master, it would be impossible to provide means for accomplishing the voyage; and it is better that the master should have authority to burden the ship, and, if necessary, the freight and cargo also, in security for the money which has become requisite, than that the adventure should be defeated by inability to proceed. But the right of the master to pledge the ship or goods must always be created by necessity; if exercised without necessity the contract will be void. Accordingly, the master of a British ship has no power to grant a bottomry bond at a British port, or at any foreign port where he might raise funds on the personal credit of the shipowners. Neither has he any power to pledge the ship or goods for private debts of his own, but only for such supplies as are indispensable for the purposes of the voyage. And in all cases he ought, if possible, to communicate with the owners of the ship, and with the proprietor of the cargo before pledging their property ("The Bonaparte," 1853, 8 Moo. P.C. 473; "The Staffordshire," 1872, L.R. 4 P.C. 194). Increased facility of communication, by telegraph and otherwise, has given additional stringency to this rule, and caused a decline in the practice of giving bottomry bonds.
The bottomry lender must use reasonable diligence to ascertain that a real necessity exists for the loan; but he is not bound to see to the application of the money advanced. If the lender has originally advanced the funds on the personal credit of the owner he is not entitled to require a bottomry obligation. A bond procured from the shipmaster by improper compulsion would be void.
The power of the master to pledge the cargo depends upon there being some reasonable prospect of benefit to it by his so doing. He has no such power except in virtue of circumstances which may oblige him to assume the character of agent for the cargo, in the absence of any other party authorized to act on its behalf. Under ordinary circumstances he is not at liberty to pledge the cargo for repairs to the ship. If indeed the goods be of a perishable nature, and if it be impossible to get the ship repaired in sufficient time to obviate serious loss on them by delay, without including them under the bottomry contract, he has power to do so, because it may fairly be assumed, in the case supposed, that the cargo will be benefited by this procedure. The general principle is, that the master must act for the cargo, with a reasonable view to the interests of its proprietors, under the whole circumstances of the case. When he does this his proceedings will be sustained; but should he manifestly prejudice the interests of the cargo by including it under bottomry for the mere purpose of relieving the ship, or of earning the freight, the owners of the cargo will not be bound by the bottomry contract. Any bottomry or respondentia bond may be good in part or bad in part, according as the master may have acted within or beyond the scope of his legitimate authority in granting it. If two or more bottomry bonds have been granted at different stages of the voyage, and the value of the property be insufficient to discharge them all, the last-dated bond has the priority of payment, as having furnished the means of preserving the ship, and thereby preventing the total loss of the security for the previous bonds.
When the sum due under a bottomry bond over ship, freight and cargo is not paid at the stipulated time, proceedings may be taken by the bondholder for recovery of the freight and for the sale of the ship; and should the proceeds of these be insufficient to discharge the claim, a judicial sale of the cargo may be resorted to. As a general rule the value of the ship and freight must be exhausted before recourse can be taken against the cargo. A bottomry bond gives no remedy to the lenders against the owners of the ship or cargo personally. The whole liability under it may be met by the surrender of the property pledged, whether the value so surrendered covers the amount of the bond or not. But the owners of the ship, though not liable to the bondholder for more than the value of the ship and freight, may be further liable to the proprietors of the cargo for any sum in excess of the cargo's proper share of the expenses, taken by the bondholder out of the proceeds of the cargo to satisfy the bond after the ship and freight have been exhausted.
The bottomry premium must be ultimately paid by the parties for whose benefit the advances were obtained, as ascertained on the final adjustment of the average expenditures at the port of destination.
The practice of pledging property subject to maritime risks was common among the ancient Greeks, being known as or (see Demosthenes' speeches Pro Phormione, Contra Lacritum and In Dionysodorum); it passed into Roman law as foenus nauticum or usura maritima.
See also Lien: Maritime; and generally Abbott on Shipping (14th ed., 1901).
Note - this article incorporates content from Encyclopaedia Britannica, Eleventh Edition, (1910-1911)