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A bottomry, or bottomage, is an arrangement in which the master of a ship borrows money upon the bottom or keel of it, so as to forfeit the ship itself to the creditor, if the money with interest is not paid at the time appointed at the ship's safe return.

This occurs, for example, where the ship needs urgent repairs during the course of its voyage or some other emergency arises and it is not possible for the master to contact the owner to arrange funds, allowing the master to borrow money on the security of the ship or the cargo by executing a bond. Where the ship is hypothecated, the bond is called a bottomry bond. Where both the ship and its cargo are hypothecated, the relationship is called respondentia. Due to the bottomry bond's relatively low priority as against other liens in the event of a libel against the ship, the use of bottomry bonds declined greatly in the 19th century and the subject is today of interest only to legal historians.

The Code of Hammurabi describes a form of bottomry that was a type of insurance. A bottomry would be taken, but the repayment would be contingent on the ship successfully completing the voyage.

In his Life of Cato the Elder, Plutarch describes how he would use the process to make money, but calls it "the most disreputable form of money-lending."[1] Kaplan and Kaplan describe it as follows:

"Ship insurance springs naturally from the necessity of trade, the existence of sophisticated entrepots, and the rapacity of barbarians -- all long-familiar facts of life on the Mediterranean. Its ancient Greek form, as described by Demosthenes, was what is now called by the splendid name of "bottomry." It was not a direct transfer of risk, but rather a conditional loan: The insurer staked the merchant to a sum of money in advance of the voyage, which was to be repaid with (considerable) interest if the voyage succeeded -- but forgiven if the vessel was lost.

It is an arrangement that is easy to describe but difficult to characterize: not a pure loan, because the lender accepts part of the risk; not a partnership, because the money to be repaid is specified; not pure insurance, because it does not specifically secure the risk to the merchant's goods. It is perhaps best considered as a futures contract: the insurer has bought an option on the venture's final value.[2]

Respondentia

Respondentia is a loan where a ship's cargo is the security, on similar terms to bottomry.[3]

See also

References

  1. ^ Cato, c. 21, in Waterfield, Robin. Plutarch, Roman Lives. ISBN 978-0-19-282502-5
  2. ^ "Changes Are...Adventures in Probability" by Michael Kaplan and Ellen Kaplan. Viking Penguin, 2006, p. 94.
  3. ^ The Free Dictionary

Further reading

  •  Chisholm, Hugh, ed. (1911). "Bottomry". Encyclopædia Britannica (11th ed.). Cambridge University Press.  This contains a detailed discussion of the contract and its history.

 This article incorporates text from a publication now in the public domainChambers, Ephraim, ed. (1728). "Bottomry". Cyclopædia, or an Universal Dictionary of Arts and Sciences (first ed.). James and John Knapton, et al. 

1893 text

“The contract of bottomry is a negotiable instrument, which may be put in suit by the person to whom it is transferred; it is in use in all countries of maritime commerce and interests. A contract in the nature of a mortgage of a ship, when the owner of it borrows money to enable him to carry on the voyage, and pledges the keel or bottom of the ship as a security for the repayment. If the ship be lost the lender loses his whole money; but if it returns in safety, then he shall receive back his principal, and also the premium stipulated to be paid, however it may exceed the usual or legal rate of interest.” — Smyth’s Sailor’s WordBook.


This text comes from a footnote on a diary entry in the 1893 edition edited by Henry B. Wheatley.

2 Annotations

in Aqua Scripto  •  Link

AS Gleaned from the OED [f. BOTTOM n. 7 + -RY, after Du. bodmerij.]
"A species of contract of the nature of a mortgage, whereby the owner of a ship, or the master as his agent, borrows money to enable him to carry on or complete a voyage, and pledges the ship as security for repayment of the money. If the ship is lost, the lender loses his money; but if it arrives safe, he receives the principal together with the interest or premium stipulated, ‘however it may exceed the usual or legal rate of interest’. Also attrib., as in bottomry-bond, -money.
1622 MALYNES Anc. Law-Merch. 171 The name Bottommarie is deriued by the Hollanders from the Keele or Bottome of a ship..The money so taken vp by the master of the ship, is commonly done vpon great necessitie..the vse payed for the same is verie great, at 30, 40, and 50 pro cent. without consideration of time"

Bill  •  Link

BOTTOMRY, BOTTOMAGE is when a Master of a Ship borrows Money upon the Bottom or Hull of the Ship, i.e. to be paid with Interest at the Ship's safe Return, otherwise the Money is all lost if the Ship be lost.
---An Universal Etymological English Dictionary. N. Bailey, 1675.

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References

Chart showing the number of references in each month of the diary’s entries.

1660

1663