MACMILLAN AND BLOEDEL v. T.H.

VALDERAMA AND SONS

 
Lex Loci Solutionis – Law of the place of performance
 
TH Valderama, through agent Splane, entered into a contract with Macmillan Canada for the
purchase and delivery of railroad equipment to thePhilippines.

The contract required that Valderama to acquire import license which wasnecessary for the
opening of letter of credit (by Macmillan). However, Valderama failed to do so.

Macmillan cancelled the contract, but incurred expenses in the process. Thus, Macmillan sued
Valderama.

 Valderama now alleges as a defense that Splane was not authorized to enter into the contract in
behalf of Valderma, thus the contract was perfected in Manila (upon their receipt of acceptance
of their offer), and the lex loci celebrationis is in Manila, thus, RP Law applicable.

ISSUE
Whether Philippine Law should apply.

RULING:
 No. Regardless of lex loci contractus or lex loci solutionis is applied Canadian law would still
apply.

A principal may authorize his agent in another state to enter into a contract valid in that state,
although invalid under the law of the state in which the principal resides. It is given as the
general rulethat
when a contract is to be performed at a place other than where it is made,the place of
performance or execution will govern with respect to the nature,validity and construction of the
contract.
 The failure of the Import Control Comm. to act on the application of import license cannot
constitute a legal excuse for his failure to perform his obligations under the contract.

G.R. No. L-10986            March 31, 1917

(SYLLABUS: Choice of Forum/Venue Clause)

COMPAGNIE DE COMMERCE ET DE NAVIGATION D'EXTREME

ORIENT, plaintiff-appellant,
vs.
THE HAMBURG AMERIKA PACKETFACHT ACTIEN GESELLSCHAFT, defendant-
appellant.

CARSON, J.:
This is an action for damages filed by the PETITIONER-Compagnie de Commerce et de
Navigation D'Extreme Orient, a French company with its principal office in the city of
Paris, France, and a branch office in the city of Saigon, vs. RESPONDENT-Hamburg
Amerika Packetfacht Actien Gesellschaft, a German corporation with its principal office
in the city of Hamburg, Germany, and represented in the city of Manila by Behn, Meyer
& Company (Limited)—growing out of the "failure, refusal and neglect of the defendant
to safely carry the Petitioner’s merchandise following the charter party and bills of
lading" .

FACTS:

1. That it was the duty of the defendant, under the terms of the charter party in evidence,
to transport the cargo in question from Saigon to Dunkirk and Hamburg, via Suez Canal,
under steam all the way (unless disabled), or so near thereunto as she might safely get,
and there to deliver the said cargo (always afloat) in any safe dock or berth which the
characters or their agents might appoint.

2. That the freight on the cargo having been made payable on right and true delivery of
the cargo at Dunkirk and Hamburg, and the transportation of the cargo having been
abandoned by the defendant at Manila, no part of the freight was earned without such
delivery, in the absence of an agreement that the ship owner should become entitled to a
proportion of the freight on delivery of the cargo in a port of refuge. (Carver on Carriage
of Goods by Sea, section 307.)

3. That the fear of the owners and master of the seizure or capture of the said
steamship Sambia by one of the bellingerent powers at war with Germany was not the
result of force majeure  and was not a legal or sufficient excuse for having fled with a
French cargo from Saigon, a French port, to Manila, or for the failure of the defendant to
transport and deliver the said cargo to the consignees at Dunkirk and Hamburg, or for the
failure to tranship the same and cause it to be delivered in accordance with the terms of
the charter party.

4. That the provision contained in the charter party requiring the ship to make delivery of
the cargo at Dunkirk and Hamburg, "or so near thereunto as she may safely get" was no
legal justification of authority for the deviation of the ship to enter Manila Bay in order to
avoid the seizure or capture of the ship by an enemy of Germany, since that cause was
intended only to justify the master of the ship in discharging the cargo at some outside
anchorage, when by reason of her draft or obstruction to navigation she could not reach
the usual wharf or anchorage of a designated port. (See Meissner vs. Brun, 128 U. S.,
474; 32 Law. Ed., 496.)

65 That inasmuch as the French cargo was absolutely safe in the French port of Saigon,
and the deviation of the steamship Sambia from her intended voyage to Dunkirk and
Hamburg and her entry into Manila Bay were induced by fear of the capture of the vessel
by one of the belligerents at war with Germany, the alleged peril which induced the
master of said vessel to enter Manila Bay was not common to both ship and cargo as
 required by the York-Antwerp Rules as a condition precedent to the levying of a general
average; that this cargo under the law of nations was not subject to confiscation by any
enemy of Germany, and the cargo not having been imperilled, the expense and loss to the
ship and its owners occasioned by the deviation and by taking refuge in Manila Bay
during the European war were not for the benefit of the cargo, but for the sole benefit of
the ship and its crew; and therefore the cargo should not in any event be called upon for
contribution under general average.

The Trial Court ruled in favor of the plaintiff and against the defendant for the said sum
of P128,977.71,.

The defendant's cross-complaint is hereby dismissed with the costs of this case against
the defendant. It is so ordered.

Counsel for the defendant-appellant made the following assignments of error on appeal:

`As indicated in the opinion of the trial judge, there is no real dispute as to the material evidential
facts of record in this case; and it will readily be seen that the vital issue raised on this appeal;

(ISSUE) is whether or not the master of the Sambia, when he fled from the port of Saigon and
took refuge in the port of Manila, had reasonable grounds to apprehend that his vessel was in
danger of seizure or capture by the public enemies of the flag under which he sailed.

CONFLICTS OF LAW ISSUE: whether the general Arbitration Clause is valid as to the choice
of venue?

If it was his duty to remain in the port of Saigon under the circumstances existing at the time
when he completed the loading of the vessel, in the hope that he would be granted a laissez-
passer or safe-conduct by the French authorities, it is manifest that his flight subjected the ship
and her owners to liability for the resultant damages suffered by the cargo.

If, on the other hand, the master had reasonable ground to believe that by remaining in the port of
Saigon he would expose the vessel to a real, and not a merely imaginary danger of seizure by the
French authorities from which he could secure her by taking refuge in the port of Manila, his
flight must be held to have been justified by the necessity under which he was placed to elect
that course which would secure the vessel from danger of seizure by a public enemy of the
country under whose flag she sailed; and the ship-owner must be held to be relieved from
liability for the deviation from the route prescribed in the charter party and the resultant damages
to the cargo, under the general provisions of maritime law

Counsel for the cargo owner insist that having in mind accepted principles of public international
law, the established practice of nations, and the express terms of the Sixth Hague Convention
(1907), the master should have confidently relied upon the French authorities at Saigon to permit
him to sail to his port of destination under a laissez-passer or safe-conduct, which would have
secured both the vessel and her cargo from all danger of capture by any of the belligerents.
Counsel for the shipowner, on the contrary, urge that in the light of the developments of the
present war, the master was fully justified in declining to leave his vessel in a situation in which
it would be exposed to danger of seizure by the French authorities, should they refuse to be
bound by the alleged rule of international law laid down by opposing counsel.

We conclude that under the circumstances surrounding the flight of the Sambia from the port of
Saigon, her master had no such assurances, under any well-settled and universally accepted rule
of public international law, as to the immunity of his vessel from seizure by the French
authorities, as would justify us in holding that it was his duty to remain in the port of Saigon in
the hope that he would be allowed to sail for the port of destination designated in the contract of
affreightment with a laissez-passer or safe-conduct which would secure the safety of his vessel
and cargo en route.

It is true that soon after the outbreak of the war, the Republic of France authorized and directed
the grant of safe-conducts to enemy merchant vessels in its harbors, under certain reasonable
regulations and restrictions; so that it would appear that had the master of the Sambia awaited the
issuance of such a safe-conduct, he might have been enabled to comply with the terms of his
contract of affreightment.

But until such action had been taken, the Sambia was exposed to the risk of seizure in the event
that the French government should decline to conform to the practice; and in the absence of any
assurance in that regard upon which the master could confidently rely, his duty to his owner and
to his vessel's flag justified him in fleeing from the danger of seizure in the port of an enemy to
the absolute security of a neutral port.

The danger from which the master of the Sambia fled was a real and not merely an imaginary
one as counsel for the shipper contends. Seizure at the hands of an "enemy of the King," though
not inevitable, was a possible outcome of a failure to leave the port of Saigon; and we cannot say
that under the conditions existing at the time when the master elected to flee from that port, there
were no grounds for a "reasonable apprehension of danger" from seizure by the French
authorities, and therefore no necessity for flight.

There can be and there is no question as to the necessity, arising out of the presence of enemy
cruisers on the high seas which compelled the Sambia, once she had left the port of Saigon, to
take refuge in the port of Manila and to stay there indefinitely pending the outcome of the war.

We conclude, therefore, that the deviation of the Sambia from the route prescribed in her
charter party, and the subsequent abandonment by the master of the voyage contemplated
in the contract of affreightment, must be held to have been justified by the necessity under
which he was placed to elect that course which would remove and preserve the vessel from
danger of seizure by the public enemies of the flag under which she sailed; and that neither the
vessel nor her owners are liable for the resultant damages suffered by the owner of the cargo.

Counsel for the cargo owner further contend that even if it be held that the action of the master of
the Sambia in fleeing to a port of refuge and abandoning the prosecution of the voyage
contemplated in the contract of affreightment, was justified or excused by the exigencies of war,
it was his imperative duty, nevertheless, to tranship the cargo on a neutral vessel to one of the
ports of destination designated in the contract.

We do not think that this contention is sustained by the evidence of record.

Under ordinary circumstances, it may fairly be presumed in the absence of instructions from a
shipper whose goods are found aboard a vessel lying in a port of refuge, whose master has been
compelled top abandon the attempt to transport the cargo in his own vessel, that the shipper's
interests will be consulted by forwarding his property to the port designated by him in the
contract of affreightment; it would appear therefore that, when practicable, the master is bound to
act for the cargo owner in that way; but when the condition of the cargo is such as to render it
inadvisable to attempt to tranship, or if there is ground to believe that such will be the case
before suitable means of transhipment can be secured, the duty clearly rests upon the master to
make such other advantageous disposition of the property of the shippers as circumstances will
permit.

The cargo of the Sambia being a perishable one, and it having proved impracticable to secure
prompt instructions from the shipper, the master was confronted with the necessity of electing
the course he should pursue, to protect the interests of the shipper whose property has been
intrusted to him under a contract of affreightment which he found himself unable to execute
upon his own vessel. He elected, after taking the advice of a competent marine surveyor, to sell
the entire cargo under judicial authority, and to that end followed substantially the proceedings
prescribe in such cases in section II, chapter III of the Commercial Code; and we are of opinion
that not only is there nothing in the record which would sustain a finding that in so doing he
failed to exercise a sound discretion in the performance of the duty resting upon him to protect
the interests of the cargo owner, but that on the whole record it affirmatively appears that this
was the only course open to him under all the circumstances existing at the time when he
adopted it.

We do not stop therefore to rule upon the contention of opposing counsel, that a contractual
stipulation, for a general arbitration cannot be invoked to oust our courts of their
jurisdiction, under the doctrine announced in the cases of Wahl and Wahl vs. Donaldson,
Sims & Co. and that this doctrine should be applied in the case at bar, notwithstanding the fact
that the contract was executed in England, in the absence of averment and proof that under the
law of England compliance with, or an offer to comply with such a stipulation constitutes a
condition precedent to the institution of judicial proceeding for the enforcement of the contract.

We conclude that so much of the judgment entered in the court below as provides for the
delivery to the plaintiff in this action of the sum of P128,977.71, the net proceeds of the sale of
the cargo of rice aboard the Sambia, which has been deposited subject to the order of the court
below, less any commissions to which the clerk of that court may be lawfully entitled at the date
of payment, should be affirmed; but that so much of the judgment as provides, for the recovery
of damages in the sum of P60,814.32, should be reversed; and further, that so much of the
judgment as provides for the payment of legal interest on the net proceeds of the sale of the rice
deposited in the court below should be modified by substitution therefor a provision for the
delivery to the plaintiff of any interest allowances which may have accumulated thereon, in any
bank or other institution, wherein it may have been deposited, at the time when the principal is
paid over to the plaintiff. No costs to either party in this instance. So ordered.

Torres, Moreland, Trent and Araullo, JJ., concur.

RESOLUTION ON MOTION FOR REHEARING.

October 26, 1917.

CARSON, J.:

The motion of counsel for plaintiff to set aside the decision heretofore entered in this case and to
grant a rehearing on the appeal is denied.

In so far as the arguments of counsel ion support of his motion rest upon grounds heretofore
decided adversely to his contentions, we find no sufficient reason for reopening the case.

In so far as the arguments rest upon an alleged unfounded distinction made in the disposition of
this case and the case of Compagnie Franco-Indochinoise vs. Deutsch, Australische Dampschiffs
Gesellschaft (p. 643, post), decided on the same day, we think that a comparison of the two
decisions, and a review of the facts and the reasoning set out therein, is sufficient to refute the
contentions of counsel in this regard.

It may be worth while, however, to discuss briefly one question that has arisen in this
connection.

In one case, wherein we found that the facts disclosed the exercise of reasonable diligence on the
part of the shipmaster, we relieved him from responsibility for losses which occurred while his
vessel lay in Manila Bay for a period of time reasonably sufficient for the determination of the
course which he should pursue in the disposition of his cargo.

In the other case, wherein we held that the shipmaster had not exercised due diligence and had
failed to take the necessary measures looking to the disposition of his cargo, we held him and his
vessel responsible for all damage to the cargo from the day he arrived in Manila Bay until it was
sold.

It has been suggested that to be consistent, we should have relieved the master in the latter case
of the loss by deterioration from the time he arrived in Manila Bay to the close of the period
which would have been allowed him (had he exercised due diligence) for the determination of
the problem of the proper disposition of his cargo.
But no evidence was offered to show what proportion of the loss by deterioration occurred
during the period, and in the very nature of things it was and is impracticable to ascertain that
fact, or to submit proofs which would sustain a judicial finding in that regard.

Said the Supreme Court of the United States (Hamilton-Brown Shoe Co. vs. Wolf Bros. & Co.,
U. S. 251, 262) and the Supreme Court of California (Graham vs. Plate, 40 Cal., 593, 596) in
discussing an analogous situation.

The difficulty lies in ascertaining what proportion of the profits is due to the trade-mark,
and what to the intrinsic value of the commodity; and as this cannot be ascertained with
any reasonable certainty, it is more consonant with reason and justice that the owner of
the trade-mark should have the whole profit than that he should be deprived of any part of
it by the fraudulent act of the defendant. It is the same principle which is applicable to a
confusion of goods. If one wrongfully mixes his own goods with those of another, so that
they cannot be distinguished and separated, he shall lose the whole, for the reason that the
fault is his; and it is but just that he should suffer the loss rather than an innocent party,
who in no degree contributed to the wrong.

In the case of Compagnie Franco-Indochinoise vs. Deutsch, Australische Dampschiffs

Gesellschaft (supra), the wrongdoer could not be heard to contend that the cargo owner should
not be permitted to recover any of the losses due to the shipmaster's lack of diligence, on the
ground that a part of those losses would have been incurred even had the master exercised due
diligence, it appearing that it was inherently impossible to ascertain what proportion of the loss
would have been incurred, in any event, and despite the exercise of the diligence required of the
master in the situation in which he found himself.

Arellano, C.J., Torres, Araullo and Street, JJ., concur.

Johnson, J., reserves his vote.

[G.R. No. L-5897. April 23, 1954.]

KING MAU WU, Plaintiff-Appellee, v. FRANCISCO SYCIP, Defendant-Appellant.

Choice of Forum/Venue Clause Compagne De Commerce v Hamb

FACTS

This is an action to collect P59,082.92 in agency commissions, which arises out of a shipment of
1,000 tons of coconut oil emulsion sold by the plaintiff-KING MAU WU, as agent of the
defendant-F.SYCIP, to Jas. Maxwell Fassett, who in turn assigned it to Fortrade
Corporation(buyer).
Under an agency agreement executed in New York addressed to the defendant and accepted by
the latter on the 22nd day of the same month, the plaintiff was made the exclusive agent of the
defendant ’in the sale of Philippine coconut oil and its derivatives outside the Philippines and
was to be paid 2 1/2 per cent on the total actual sale price of sales obtained through his efforts
and in addition thereto 50 per cent of the difference between the authorized sale price and the
actual sale price.

The Trial Court rendered judgment in favor of petitioner. A motion for reconsideration was
denied. A motion for new trial was filed, supported by the defendant’s affidavit, based on newly
discovered evidence which consists of a duplicate original of a letter dated 16 October 1946
covering the sale of 1,000 tons of coconut oil soap emulsion signed by Jas. Maxwell Fassett to
the defendant; the letter of credit No. 20122 of the Chemical Bank & Trust Company in favor of
Jas. Maxwell Fassett assigned by the latter to the defendant; and a letter by the Fortrade
Corporation to Jas. Maxwell Fassett whereby the corporation placed an order of 1,000 metric
tons of coconut oil soap emulsion and Jas. Maxwell Fassett accepted it, all of which documents,
according to the defendant-F.Sycip, could not be produced at the trial. The motion for new trial
was denied. The defendant is appealing from said judgment.

Both parties agreed that the only transaction or sale made by the plaintiff, as agent of the
defendant, was that of 1,000 metric tons of coconut oil emulsion f.o.b. in Manila, Philippines, to
Jas. Maxwell Fassett, in whose favor letter of credit No. 20112 of the Chemical Bank & Trust
Company for a sum not to exceed $400,000 was established and who assigned to Fortrade
Corporation his right to the 1,000 metric tons of coconut oil emulsion and in the defendant the
letter of credit referred to for a sum not to exceed $400,000.

The plaintiff claims that for that sale he is entitled to a commission of 21 1/2 per cent on the total
actual sale price of 1,000 tons of coconut oil emulsion, part of which has already been paid by
the defendant, there being only a balance of $3,794.94 for commission due and unpaid on the last
shipment of 379.494 tons and 50 per cent of the difference between the authorized sale price of
$350 per ton and the actual selling price of $400 per ton, which amounts to $25,000 due and
unpaid, as well as interests.

The defendant, on the other hand, contends that the transaction for the sale of 1,000 metric tons
of coconut oil emulsion was not covered by the agency contract of 22 November 1946 because it
was agreed upon on 16 October 1946; that it was an independent and separate transaction
for which the plaintiff has been duly compensated.

The Court finds for the plaintiff. The plaintiff and his witness depose that there were several
drafts of documents or letters prepared by Jas. Maxwell Fassett preparatory or leading to the
execution of the agency agreement of 7 November 1946, which was accepted by the defendant
on 22 November 1946, and that the letter, on which the defendant bases his contention that the
transaction on the 1,000 metric tons of coconut oil emulsion was not covered by the agency
agreement, was one of those letters.

The letter upon which defendant relies for his defense does not stipulate on the commission to
be paid to the plaintiff as agent, and yet if he paid the plaintiff a 2 1/2 per cent commission on the
first three coconut oil emulsion shipments, there is no reason why he should not pay him the
same commission on the last shipment amounting to $3,794.94.

There can be no doubt that the sale of 1,000 metric tons of coconut oil emulsion was not a
separate and independent contract from that of the agency agreement of 7 November and
accepted on 22 November 1946 by the defendant, as admitted by the defendant in two letters and
a telegram, referring to the transaction of 1,000 metric tons of coconut oil emulsion,

CONFLICTS OF LAW ISSUE: May a non-resident sue a resident in the PH where the
defendant may be summoned and his property leviable upon execution in case of a favorable,
final and executory judgment?

HELD: Yes. It is a personal action for the collection of a sum of money which the Courts of First
Instance have jurisdiction to try and decide. There is no conflict of laws involved in the case,
because it is only a question of enforcing an obligation created by or arising from contract; and
unless the enforcement of the contract be against public policy of the forum, it must be enforced.

The plaintiff is entitled to collect P7,589.88 for commission and P50,000 for one-half of the
overprice, or a total of P57,589.88, lawful interests thereon from the date of the filing of the
complaint, and costs in both instances.

G.R. No. 91228. March 22, 1993. (Arbitration Clauses)

PUROMINES, INC., petitioner, vs. COURT OF APPEAL and PHILIPP BROTHERS

OCEANIC, INC., respondents.

Petitioner-Puromines and Makati Agro Trading, Inc. (not a party in this case) entered into a
contract with private respondents-Philipp Brothers Oceanic, Inc. for the sale of prilled Urea in
bulk. T

The Sales Contract bears an arbitration clause which states, thus:

"9. Arbitration

"Any disputes arising under this contract shall be settled by arbitration in London in
accordance with the Arbitration Act 1950 and any statutory amendment or modification thereof.
Each party is to appoint an Arbitrator, and should they be unable to agree, the decision of an
Umpire appointed by them to be final. The Arbitrators and Umpire are all to be commercial men
and resident in London. This submission may be made a rule of the High Court of Justice in
England by either party." 2
On or about May 22, 1988, the vessel M/V "Liliana Dimitrova" loaded on board at Yuzhny,
USSR a shipment of 15,500 metric tons prilled Urea in bulk complete and in good order and
condition for transport to Iloilo and Manila, to be delivered to petitioner.

Three bills of lading were issued by the ship-agent in the Philippines, Maritime Factors Inc.
covering 15,500 metric tons for discharge Manila;

The shipment covered by Bill of Lading No. 2 was discharged in Iloilo City complete and in
good order and condition. However, the shipments covered by Bill of Lading Nos. 1 and 3 were
discharged in Manila in bad order and condition, caked, hardened and lumpy, discolored and
contaminated with rust and dirt. Damages were valued at P683,056. 29 including additional
discharging expenses.

Consequently, petitioner filed a complaint with the trial court 4 for breach of contract of carriage
against Maritime Factors Inc. (which was not included as respondent in this petition) as ship-
agent in the Philippines for the owners of the vessel MV "Liliana Dimitrova," while private
respondent, Philipp Brothers Oceanic Inc., was impleaded as charterer of the said vessel
and proper party to accord petitioner complete relief.

Maritime Factors, Inc. filed a motion to dismisson the grounds that the complaint states no cause
of action; that it was prematurely filed; and that petitioner should comply with the arbitration
clause in the sales contract.

The motion to dismiss was opposed by petitioner contending the inapplicability of the
arbitration clause inasmuch as the cause of action did not arise from a violation of the terms of
the sales contract but rather for claims of cargo damages where there is no arbitration agreement.

On April 26, 1989, The trial court denied respondent's motion to dismiss in this wise:

"The sales contract in question states in part:

'Any disputes arising under this contract shall be settled by arbitration . . .(emphasis supplied)

"A perusal of the facts alleged in the complaint upon which the question of sufficiency of the
cause of action of the complaint arose from a breach of contract of carriage by the vessel
chartered by the defendant Philipp Brothers Oceanic, Inc. Thus, the aforementioned arbitration
clause cannot apply to the dispute in the present action which concerns plaintiff's claim for cargo
loss/damage arising from breach of contract of carriage.

"That the defendant is not the ship owner or common carrier and therefore plaintiff does not have
legal right against it since every action must be brought against the real party in interest has no
merit either for by the allegations in the complaint the defendant herein has been impleaded as
charterer of the vessel, hence, a proper party."
Elevating the matter to the Court of Appeals, petitioner's complaint was dismissed. The
appellate court found that the arbitration provision in the sales contract and/or the bills of
lading is applicable in the present case. Said the court:

"An examination of the sales contract shows that it is broad enough to include the claim for
damages arising from the carriage and delivery of the goods subject-matter thereof.

"It is also noted that the bills of lading attached as Annexes 'A', 'B' and 'C' to the complaint state,
in part, 'any dispute arising under this Bill of Lading shall be referred to arbitration of the
Maritime Arbitration Commission at the USSR Chamber of Commerce and Industry, 6
Kuibyshevskaia Str., Moscow, USSR, in accordance with the rules of procedure of said
commission.'

Considering that the private respondent was one of the signatories to the sales contract . . . all
parties are obliged to respect the terms and conditions of the said sales contract, including the
provision thereof on 'arbitration.' "

Hence, this petition

The issue raised is: Whether the phrase "any dispute arising under this contract" in the arbitration
clause of the sales contract covers a cargo claim against the vessel (owner and/or charterers) for
breach of contract of carriage.

For COL purposes, whether the arbitration clause is valid.

In the present petition, petitioner argues that the sales contract does not include the contract of
carriage which is a different contract entered into by the carrier with the cargo owners. That it
was an error for the respondent court to touch upon the arbitration provision of the bills lading in
its decision inasmuch as the same was not raised as an issue by private respondent who was not a
party in the bills of lading (emphasis Ours).

We agree with the court a quo that the sales contract is comprehensive enough to include claims
for damages arising from carriage and delivery of the goods.

xxx xxx xxx

As argued by respondent on its motion to dismiss, "the (petitioner) derives his right to the cargo
from the bill of lading which is the contract of affreightment together with the sales contract.
Consequently, the (petitioner) is bound by the provisions and terms of said bill of lading and of
the arbitration clause incorporated in the sales contract."

Assuming arguendo that the liability of respondent is not based on the sales contract, but rather
on the contract of carriage, being the charterer of the vessel MV "Liliana Dimitrova," it would,
therefore, be material to show what kind of charter party the respondent had with the shipowner
to determine respondent's liability.
Assuming that in the present case, the charter party is a demise or bareboat charter, then Philipp
Brothers is liable to Puromines, Inc., subject to the terms and conditions of the sales contract. On
the other hand, if the contract between respondent and the owner of the vessel MV "Liliana
Dimitrova" was merely that of affreightment, then it cannot be held liable for the damages
caused by the breach of contract of carriage, the evidence of which is the bills of lading

In any case, whether the liability of respondent should be based on the same contract or that of
the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions
on the sales contract and/or the bill of lading. Petitioner being a signatory and party to the
sales contract cannot escape from his obligation under the arbitration clause as stated therein.

Neither can petitioner contend that the arbitration provision in the bills of lading should not have
been discussed as an issue in the decision of the Court of Appeals since it was not raised as a
special or affirmative defense.

Premises considered, We uphold the validity and applicability of the arbitration clause as stated
in Sales Contract No. S151.8.01018 to the present dispute.

WHEREFORE, petition is hereby DISMISSED and decision of the court a quo is AFFIRMED.

U.S. Supreme Court Arbitration Clauses

The Bremen v. Zapata Off-Shore Co.

No. 71-322

Argued March 21, 1972

Decided June 12, 1972

407 U.S. 1

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUITSyllabus

Petitioner Unterweser made an agreement to tow respondent's drilling rig from Louisiana to
Italy. The contract contained arbitration clause providing for the litigation of any dispute in
London. When the rig under tow was damaged in a storm, respondent instructed Unterweser to
tow the rig to Tampa, the nearest port of refuge. There, respondent brought suit in admiralty
against petitioners. Unterweser invoked the forum clause in moving for dismissal for want of
jurisdiction and brought suit in the English court, which ruled that it had jurisdiction under the
contractual forum provision. The District Court, relying on Carbon Black Export, Inc. v. The
Monrosa, 254 F.2d 297, held the forum-selection clause unenforceable, and refused to decline
jurisdiction on the basis of forum non conveniens. The Court of Appeals affirmed.

Held: The forum-selection clause, which was a vital part of the towing contract, is binding on the
parties unless respondent can meet the heavy burden of showing that its enforcement would be
unreasonable, unfair, or unjust. Pp. 407 U. S. 8-20

BURGER, C. J., delivered the opinion of the Court, in which BRENNAN, STEWART, WHITE,
MARSHALL, BLACKMUN, POWELL, and REHNQUIST, JJ., joined. WHITE, J., filed a
concurring statement, post, p. 407 U. S. 20. DOUGLAS, J., filed a dissenting opinion, post,
p. 407 U. S. 20.

MR. CHIEF JUSTICE BURGER delivered the opinion of the Court.

In November, 1967, respondent Zapata, a Houston-based American corporation, contracted with

petitioner Unterweser, a German corporation, to tow Zapata's ocean-going, self-elevating drilling
rig Chaparral from Louisiana to a point off Ravenna, Italy, in the Adriatic Sea, where Zapata
had agreed to drill certain wells.

Zapata had solicited bids for the towage, and several companies, including Unterweser, had
responded. Unterweser was the low bidder and Zapata requested it to submit a contract, which it
did. The contract submitted by Unterweser contained the following provision, which is at issue in
this case:

"Any dispute arising must be treated before the London Court of Justice. "

In addition, the contract contained two clauses purporting to exculpate Unterweser from liability
for damages to the towed barge.

On January 5, 1968, Unterweser's deep sea tug Bremen departed Venice, Louisiana, with
the Chaparral in tow bound for Italy. On January 9, while the flotilla was in international waters
in the middle of the Gulf of Mexico, a severe storm arose.

The sharp roll of the Chaparral in Gulf waters caused its elevator legs, which had been raised for
the voyage, to break off and fall into the sea, seriously damaging the Chaparral. In this
emergency situation, Zapata instructed the Bremen to tow its damaged rig to Tampa, Florida, the
nearest port of refuge.

On January 12, Zapata, ignoring its contract promise to litigate "any dispute arising" in the
English courts, commenced a suit in admiralty in the United States

District Court at Tampa, seeking $3,500,000 damages against Unterweser in personam and

the Bremen in rem, alleging negligent towage and breach of contract.
Unterweser responded by invoking the forum clause of the towage contract, and moved to
dismiss for lack of jurisdiction or on forum non conveniens grounds, or, in the alternative, to stay
the action pending submission of the dispute to the "London Court of Justice."

Shortly thereafter, in February, before the District Court had ruled on its motion to stay or
dismiss the United States action, Unterweser commenced an action against Zapata seeking
damages for breach of the towage contract in the High Court of Justice in London, as the contract
provided; Zapata appeared in that court to contest jurisdiction, but its challenge was rejected, the
English courts holding that the contractual forum provision conferred jurisdiction.

In the meantime, Unterweser was faced with a dilemma in the pending action in the United
States court at Tampa. The six-month period for filing action to limit its liability to Zapata and
other potential claimants was about to expire, [Footnote 5] but the United States District Court in
Tampa had not yet ruled on Unterweser's motion to dismiss or stay Zapata's action.

On July 2, 1968, confronted with difficult alternatives, Unterweser filed an action to limit its
liability in the District Court in Tampa. That court entered the customary injunction against
proceedings outside the limitation court, and Zapata refiled its initial claim in the limitation
action. [

It was only at this juncture, on July 29, after the six-month period for filing the limitation action
had run, that the District Court denied Unterweser's January motion to dismiss or stay Zapata's
initial action. In denying the motion, that court relied on the prior decision of the Court of
Appeals in Carbon Black Export, Inc. v. The Monrosa, 254 F.2d 297 (CA5 1958), cert.
dismissed, 359 U. S. 180 (1959). In that case, the Court of Appeals had held a forum selection
clause unenforceable, reiterating the traditional view of many American courts that

"agreements in advance of controversy whose object is to oust the jurisdiction of the courts are
contrary to public policy, and will not be enforced."

Apparently concluding that it was bound by the Carbon Black case, the District Court gave the
forum selection clause little, if any, weight.

Instead, the court treated the motion to dismiss under normal forum non conveniens doctrine
applicable in the absence of such a clause, citing Gulf Oil Corp. v. Gilbert, 330 U. S.
501 (1947).

Under that doctrine "unless the balance is strongly in favor of the defendant, the plaintiff's choice
of forum should rarely be disturbed." Id. at 330 U. S. 508. The District Court concluded: "The
balance of conveniences here is not strongly in favor of [Unterweser] and [Zapata's] choice of
forum should not be disturbed."

Thereafter, on January 21, 1969, the District Court denied another motion by Unterweser to stay
the limitation action pending determination of the controversy in the High Court of Justice in
London, and granted Zapata's motion to restrain Unterweser from litigating further in the London
court. The District Judge ruled that, having taken jurisdiction in the limitation proceeding, he had
jurisdiction to determine all matters relating to the controversy. He ruled that Unterweser should
be required to "do equity" by refraining from also litigating the controversy in the London court,
not only for the reasons he had previously stated for denying Unterweser's first motion to stay
Zapata's action, but also because Unterweser had invoked the United States court's jurisdiction to
obtain the benefit of the Limitation Act.

On appeal, a divided panel of the Court of Appeals affirmed, and, on rehearing en banc, the
panel opinion was adopted, with six of the 14 en banc judges dissenting. As had the District
Court, the majority rested on the Carbon Black decision, concluding that, "at the very least,'"
that case stood for the proposition that a forum selection clause "`will not be enforced unless the
selected state would provide a more convenient forum than the state in which suit is brought.'

In the Court of Appeals' view, enforcement of such clauses would be contrary to public policy in
American courts under Bisso v. Inland Waterways Corp., 349 U. S. 85 (1955), and Dixilyn
Drilling Corp. v. Crescent Towing & Salvage Co., 372 U. S. 697 (1963). Therefore,

This view, advanced in the well reasoned dissenting opinion in the instant case, is that such
clauses are prima facie valid, and should be enforced unless enforcement is shown by the
resisting party to be "unreasonable" under the circumstances. [Footnote 11] We believe this is the
correct doctrine to be followed by federal district courts sitting in admiralty. It is merely the
other side of the proposition recognized by this Court in National Equipment Rental, Ltd. v.
Szukhent, 375 U. S. 311 (1964), holding that in federal courts a party may validly consent to be
sued in a jurisdiction where he cannot be found for service of process through contractual
designation of an "agent" for receipt of process in that jurisdiction.

The argument that such clauses are improper because they tend to "oust" a court of jurisdiction is
hardly more than a vestigial legal fiction. It appears to rest at core on historical judicial resistance
to any attempt to reduce the power and business of a particular court, and has little place in an
era when all courts are overloaded and when businesses, once essentially local, now operate in
world markets. It reflects something of a provincial attitude regarding the fairness of other
tribunals. No one seriously contends in this case that the forum selection clause "ousted" the
District Court of jurisdiction over Zapata's action. The threshold question is whether that court
should have exercised its jurisdiction to do more than give effect to the legitimate expectations of
the parties, manifested in their freely negotiated agreement, by specifically enforcing the forum
clause.

There are compelling reasons why a freely negotiated private international agreement, unaffected
by fraud, undue influence, or overweening bargaining power, [Footnote 14] such as that involved
here, should be given full effect.

In this case, for example, we are concerned with a far from routine transaction between
companies of two different nations contemplating the tow of an extremely costly piece of
equipment from Louisiana across the Gulf of Mexico and the Atlantic Ocean, through the
Mediterranean Sea to its final destination in the Adriatic Sea. In the course of its voyage, it was
to traverse the waters of many jurisdictions. The Chaparral could have been damaged at any
point along the route, and there were countless possible ports of refuge. The elimination of all
such uncertainties by agreeing in advance on a forum acceptable to both parties is an
indispensable element in international trade, commerce, and contracting. There is strong
evidence that the forum clause was a vital part of the agreement, [Footnote 16] and it would be
unrealistic to think that the parties did not conduct their negotiations, including fixing the
monetary terms, with the consequences of the forum clause figuring prominently in their
calculations.

Under these circumstances, as Justice Karminski reasoned in sustaining jurisdiction over Zapata
in the High Court of Justice, "[t]he force of an agreement for litigation in this country, freely
entered into between two competent parties, seems to me to be very powerful."

Thus, in the light of present-day commercial realities and expanding international trade, we
conclude that the forum clause should control absent a strong showing that it should be set aside.
Although their opinions are not altogether explicit, it seems reasonably clear that the District
Court and the Court of Appeals placed the burden on Unterweser to show that London would be
a more convenient forum than Tampa, although the contract expressly resolved that issue.

The correct approach would have been to enforce the forum clause specifically unless Zapata
could clearly show that enforcement would be unreasonable and unjust, or that the clause was
invalid for such reasons as fraud or overreaching. Accordingly, the case must be remanded for
reconsideration.

"[Zapata] pointed out that in this case the balance of convenience so far as witnesses were
concerned pointed in the direction of having the case heard and tried in the United States District
Court at Tampa in Florida because the probability is that most, but not necessarily all, of the
witnesses will be American. The answer, as it seems to me, is that a substantial minority, at least,
of witnesses are likely to be German. The tug was a German vessel, and was, as far as I know,
manned by a German crew. . . . Where they all are now or are likely to be when this matter is
litigated I do not know, because the experience of the Admiralty Court here strongly points out
that maritime witnesses, in the course of their duties, move about freely. The homes of the
German crew presumably are in Germany. There is probably a balance of numbers in favour of
the Americans, but not, as I am inclined to think, a very heavy balance."

App. 212. It should also be noted that, if the exculpatory clause is enforced in the English courts,
many of Zapata's witnesses on the questions of negligence and damage may be completely
unnecessary.

Zapata has suggested that Unterweser was not in any way required to file its "affirmative"
limitation complaint, because it could just as easily have pleaded limitation of liability by way of
defense in Zapata's initial action, either before or after the six-month period. That course of
action was not without risk, however, that Unterweser's attempt to limit its liability by answer
would be held invalid. See G. Gilmore & C. Black, Admiralty § 115 (1957). We do not believe
this hazardous option in any way deprived Unterweser's limitation complaint of its essentially
defensive character so far as Zapata was concerned.

MR. JUSTICE WHITE, concurring.

I concur in the opinion and judgment of the Court except insofar as the opinion comments on the
issues which are remanded to the District Court.

Chief Justice Taft concluded:

"[T]his Court has, by its rules and decisions, given the statute a very broad and equitable
construction for the purpose of carrying out its purpose and for facilitating a settlement of the
whole controversy over such losses as are comprehended within it, and that all the ease with
which rights can be adjusted in equity is intended to be given to the proceeding. It is the
administration of equity in an admiralty court. . . . The proceeding partakes in a way of the
features of a bill to enjoin a multiplicity of suits, a bill in the nature of an interpleader, and a
creditor's bill. It looks to a complete and just disposition of a many-cornered controversy, and is
applicable to proceedings in rem against the ship, as well as to proceedings in personam against
the owner, the limitation extending to the owner's property as well as to his person."

Id. at 273 U. S. 215-216.

The Limitation Court is a court of equity, and, traditionally, an equity court may enjoin litigation
in another court where equitable considerations indicate that the other litigation might prejudice
the proceedings in the Limitation Court. Petitioners' petition for limitation

Page 407 U. S. 23

subjects them to the full equitable powers of the Limitation Court.

Respondent is a citizen of this country. Moreover, if it were remitted to the English court, its
substantive rights would be adversely affected. Exculpatory provisions in the towage control
provide (1) that petitioners, the masters and the crews "are not responsible for defaults and/or
errors in the navigation of the tow" and (2) that "[d]amages suffered by the towed object are in
any case for account of its Owners."

Moreover, the casualty occurred close to the District Court, a number of potential witnesses,
including respondent's crewmen, reside in that area, and the inspection and repair work were
done there. The testimony of the tower's crewmen, residing in Germany, is already available by
way of depositions taken in the proceedings.

All in all, the District Court judge exercised his discretion wisely in enjoining petitioners from
pursuing the litigation in England. *

I would affirm the judgment below.

G.R. No. 60673 May 19, 1992 (ADHESION CONTRACTS)

PAN AMERICAN WORLD AIRWAYS, INC., petitioner,
vs.
JOSE K. RAPADAS and THE COURT OF APPEALS, respondents.

Froilan P. Pobre for private respondent.

FACTS:

On January 16, 1975, private respondent Jose K. Rapadas held Passenger Ticket and Baggage
Claim Check No. 026-394830084-5 for petitioner's-PAN AM Flight No. 841 with the route from
Guam to Manila.

While standing in line to board the flight at the Guam airport, Rapadas was ordered by
petitioner's handcarry control agent to check-in his Samsonite attache case. Rapadas protested
pointing to the fact that other co-passengers were permitted to handcarry bulkier baggages. He
stepped out of the line only to go back again at the end of it to try if he can get through without
having to register his attache case. However, the same man in charge of handcarry control did
not fail to notice him and ordered him again to register his baggage. For fear that he would miss
the plane if he insisted and argued on personally taking the valise with him, he acceded to
checking it in. He then gave his attache case to his brother who happened to be around and who
checked it in for him, but without declaring its contents or the value of its contents. He was given
a Baggage Claim Tag No. P-749-713. (Exhibit "B" for the plaintiff-respondent)

Upon arriving in Manila on the same date, January 16, 1975, Rapadas claimed and was given all
his checked-in baggages except the attache case. Since Rapadas felt ill on his arrival, he sent his
son, Jorge Rapadas to request for the search of the missing luggage.

On January 30, 1975, the petitioner required the private respondent to put the request in writing.
The respondent filled in a Baggage Claim Blank Form. Thereafter, Rapadas personally followed
up his claim. For several times, he called up Mr. Panuelos, the head of the Baggage Section of
PAN AM. He also sent letters demanding and reminding the petitioner of his claim.

Rapadas received a letter from the petitioner's counsel dated August 2, 1975 offering to settle the
claim for the sum of one hundred sixty dollars ($160.00) representing the petitioner's alleged
limit of liability for loss or damage to a passenger's personal property under the contract of
carriage between Rapadas and PAN AM. Refusing to accept this kind of settlement, Rapadas
filed the instant action for damages on October 1, 1975. Rapadas alleged that PAN AM
discriminated or singled him out in ordering that his luggage be checked in. He also alleged
that PAN AM neglected its duty in the handling and safekeeping of his attache case from the
point of embarkation in Guam to his destination in Manila. He placed the value of the lost
attache case and its contents at US$42,403.90. According to him, the loss resulted in his failure
to pay certain monetary obligations, failure to remit money sent through him to relatives,
inability to enjoy the fruits of his retirement and vacation pay earned from working in Tonga
Construction Company (he retired in August 1974) and inability to return to Tonga to comply
with then existing contracts.

In its answer, petitioner-defendant PAN AM acknowledged responsibility for the loss of the
attache case but asserted that the claim was subject to the "Notice of Baggage Liability
Limitations" allegedly attached to and forming part of the passenger ticket. The petitioner argued
that the same notice was also conspicuously posted in its offices for the guidance of the
passengers.

The lower court ruled in favor of complainant Rapadas after finding no stipulation giving
notice to the baggage liability limitation. The court rejected the claim of defendant PANAM
that its liability under the terms of the passenger ticket is only up to $160.00.

Hence, this petition.

The main issue raised in the case at bar is (ISSUE) whether or not a passenger is bound by the
terms of a passenger ticket declaring that the limitations of liability set forth in the Warsaw shall
apply in case of loss, damage or destruction to a registered luggage of a passenger.

The petitioner maintains that its liability for the lost baggage of respondent Rapadas was limited
to $160.00 since the latter did not declare a higher value for his baggage and did not pay the
corresponding additional charges.

The private respondent, on the other hand, insists that he is entitled to as much damages as those
awarded by the court and affirmed by the respondent appellate court.

After a review of the various arguments of the opposing parties as well as the records of the case,
the Court finds sufficient basis under the particular facts of this case for the availment of the
liability limitations under the Warsaw Convention.

There is no dispute, and the courts below admit, that there was such a Notice appearing on page
two (2) of the airline ticket stating that the Warsaw Convention governs in case of death or injury
to a passenger or of loss, damage or destruction to a passenger's luggage.

The Notice states:

If the passenger's journey involves an ultimate destination or stop in a country

other than the country of departure the Warsaw Convention may be applicable
and the Convention governs and in most cases limits the liability of carriers for
death or personal injury and in respect of loss of or damage to baggage. See also
notice headed "Advice to International Passengers on Limitation of Liability."
(The latter notice refers to limited liability for death or personal injury to
passengers with proven damages not exceeding US $75,000 per passenger;
Exhibit "K" for plaintiff respondent, Table of Exhibits, p. 19)
We have held in the case of Ong Yiu v. Court of Appeals, supra, and reiterated in a similar case
where herein petitioner was also sued for damages, Pan American World Airways
v. Intermediate Appellate Court (164 SCRA 268 [1988]) that:

It (plane ticket) is what is known as a contract of "adhesion", in regards which it

has been said that contracts of adhesion wherein one party imposes a ready made
form of contract on the other, as the plane ticket in the case at bar, are contracts
not entirely prohibited. The one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent.

We hasten to add that while contracts of adhesion are not entirely prohibited, neither is a
blind reliance on them encouraged. In the face of facts and circumstances showing they should
be ignored because of their basically one sided nature, the Court does not hesitate to rule out
blind adherence to their terms. (See Sweet Lines, Inc. v. Teves, 83 SCRA 361, 368-369[1978])

The arguments of the petitioner do not belie the fact that it was indeed accountable for the loss of
the attache case. What the petitioner is concerned about is whether or not the notice, which it did
not fail to state in the plane ticket and which it deemed to have been read and accepted by the
private respondent will be considered by this Court as adequate under the circumstances of this
case. As earlier stated, the Court finds the provisions in the plane ticket sufficient to govern
the limitations of liabilities of the airline for loss of luggage.

The passenger, upon contracting with the airline and receiving the plane ticket, was expected to
be vigilant insofar as his luggage is concerned. If the passenger fails to adduce evidence to
overcome the stipulations, he cannot avoid the application of the liability limitations.

WHEREFORE, the petition is hereby GRANTED and the decision of the respondent Court of
Appeals is REVERSED and SET ASIDE. The petitioner is ordered to pay the private respondent
damages in the amount of US$400.00 or its equivalent in Philippine Currency at the time of
actual payment, P10,000.00 in attorney's fees, and costs of the suit.

SO ORDERED.

Feleciano, Bidin, Davide, Jr. and Romero, JJ., concur.

IRST DIVISION

[G.R. No. L-15671. November 29, 1960.]

AMERICAN PRESIDENT LINES, LTD., Petitioner, v. RICHARD A. KLEPPER, ET

AL., Respondents.

Ross, Selph & Carrascoso for Petitioner.

 Ozaeta, Gibbs & Ozaeta for Respondent.

J. A. Wolfson as amicus curiae.

2. ID.; BILL OF LADING; WHEN BINDING UPON CONSIGNEE ALTHOUGH NOT

SIGNED BY HIM OR BY HIS AGENT. — Where the bill of lading provides that a shipper or
consignee who accepts the bill becomes bound by all the stipulations contained therein, the said
shipper or consignee cannot elude its provisions simply because they prejudice him and take
advantage of those that are beneficial to him. In the case at bar, the fact that the shipper and
consignee paid the corresponding freight on his goods, shows that he impliedly accepted the bill
of lading which was issued in connection with his shipment. Hence, the same is binding upon
him as if it had been actually signed by him or by any person in his behalf.

FACTS:
Richard A. Klepper brought this action before the Court of First Instance of Manila to recover
the sum of P6,729.50 as damages allegedly sustained by his goods contained in a lift van which
fell to the ground while being unloaded from a ship owned and operated by the petitioner-
American President Lines, Ltd. to the pier,

February 17, 1955, Klepper shipped on board the S.S. President Cleveland at Yokohama, Japan
one life van under bill of lading No, 82, containing personal and household effects.

The ship arrived in the port of Manila on February 22, 1995 and while the lift van was being
unloaded by the Gantry crane operated by Delgado Brothers, Inc., it fell on the pier and its
contents were spilled and scattered. A survey was made and the result was that Klepper suffered
damages totalling P6,729.50 arising out of the breakage, denting and smashing of the goods.

The trial court, rendered decision ordering the shipping company to pay plaintiff the sum of
P6,729.50, value of the goods damaged

The court ordered that, once the judgment is satisfied, co-defendant Delgado Brothers, Inc.
should pay the shipping company the same amounts by way of reimbursement. Both defendants
appealed to the Court of Appeals which affirmed in toto the decision of the trial court. The
shipping company interposed the present petition for review.

Anent the liability of petitioner relative to the damage caused to the goods in question, the Court
of Appeals made the following comment: "At the outset, it may be well to state that the party
primarily liable to plaintiff is appellant American President Lines, Ltd., the carrier whose duty it
was to deliver the cargo in good order to the consignee. Articles 1734, 1736, Civil code; Articles
355, 363, Code of Commerce. This appellant does not question the finding below that the
damage to plaintiff’s goods was due to negligence."cralaw virtua1aw library

To this we agree. And we may add that, regardless of its negligence, the shipping company’s
liability would attach because being a common carrier its responsibility is extraordinary and lasts
from the time the goods are placed in its possession until they are delivered, actually or
constructively, to the consignee or to the person who has a right to receive them (Article 1736,
Idem.) It can only be exempt therefrom for causes enumerated in Article 1734.

While it is apparent from the above that the carrier has expressly agreed that in case of any loss
or damage to the goods in question exceeding the sum of $500.00 per package the extent of its
liability shall be deemed to be merely $500.00 per package, and not more, the Court of Appeals
ruled out the above stipulation, holding that the same is not binding upon the shipper. Its
reasoning follows: "Neither plaintiff nor any agent of his signed the bill of lading; neither has
agreed to the two clauses just recited. In fact, plaintiff received the bill of lading only after he
had arrived at Manila. In this posture and lifting from the decision of the Supreme Court in
Mirasol v. Robert Dollar Co., 53 Phil., 124, 128, we hold that plaintiff ‘was not legally bound by
the clause which purports to limit defendants’ liability’." Petitioner now assigns this finding as
an error.

ISSUE: Whether the CA is wrong in finding for the inapplicability of the limitation of liability as
embodied in the contract, one of adhesion, prepared by the common carrier.

HELD: No, the CA is wrong. Firstly, we cannot but take note of the following clause printed in
red ink that appears on the very face of the bill of lading: "IN ACCEPTING THIS BILL OF
LADING the shipper, consignee and owner of the goods agree to be bound by all its stipulations,
exceptions, and conditions whether written, printed, or stamped on the front or back hereof, any
local customs or privileges to the contrary notwithstanding." It says that a shipper or consignee
who accepts the bill of lading becomes bound by all stipulations contained therein whether on
the front or back thereof. Respondent cannot elude its provisions simply because they prejudice
him and take advantage of those that are beneficial. (CONTRACT OF ADHESION BOUND)

Secondly, the fact that respondent shipped his goods on board the ship of petitioner and paid the
corresponding freight thereon shows that he impliedly accepted the bill of lading which was
issued in connection with the shipment in question, and so it may be said that the same is binding
upon him as if it has been actually signed by him or by any other person in his behalf.

G.R. No. L-31150 July 22, 1975

KONINKLIJKE LUCHTVAART MAATSHAPPIJ N.V., otherwise known as KLM

ROYAL DUTCH AIRLINES, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, CONSUELO T. MENDOZA and RUFINO
T. MENDOZA, respondents.
FACTS:

Sometime in March 1965 the respondents-MENDOZA approached Tirso Reyes, manager of a

branch of the Philippine Travel Bureau, a travel agency, for consultations about a world tour
which they were intending to make with their daughter and a niece. Reyes submitted to them,
after preliminary discussions, a tentative itinerary which prescribed a trip of thirty-five legs; the
respondents would fly on different airlines. Three segments of the trip, the longest, would be via
KLM. The respondents expressed a desire to visit Lourdes, France, and discussed with Reyes
two alternate routes, namely, Paris to Lourdes and Barcelona to Lourdes. The respondents
decided on the Barcelona-Lourdes route with knowledge that only one airline, Aer Lingus,
serviced it.

The Philippine Travel Bureau to which Reyes was accredited was an agent for international air
carriers which are members of the International Air Transport Association, popularly known as
the "IATA," of which both the KLM and the Aer Lingus are members.

After about two weeks, the respondents approved the itinerary prepared for them, and asked
Reyes to make the necessary plane reservations. Reyes went to the KLM, for which the
respondents had expressed preference. The KLM thereafter secured seat reservations for the
respondents and their two companions from the carriers which would ferry them throughout their
trip, with the exception of Aer Lingus. When the respondents left the Philippines (without their
young wards who had enplaned much earlier), they were issued KLM tickets for their entire trip.
However, their coupon for the Aer Lingus portion (Flight 861 for June 22, 1965) was marked
"RQ" which meant "on request".

After sightseeing in American and European cities (they were in the meantime joined by their
two young companions), the respondents arrived in Frankfurt, Germany. They went to a KLM
office there and obtained a confirmation from Aer Lingus of seat reservations on flight 861.
After meandering in London, Paris and Lisbon, the foursome finally took wing to Barcelona for
their trip to Lourdes, France.

In the afternoon of June 22, 1965 the respondents with their wards went to the Barcelona airport
to take their plane which arrived at 4:00 o'clock. At the airport, the manager of Aer Lingus
directed the respondents to check in. They did so as instructed and were accepted for passage.

However, although their daughter and niece were allowed to take the plane, the respondents were
off-loaded on orders of the Aer Lingus manager who brusquely shoved them aside with the aid
of a policeman and who shouted at them, "Conos! Ignorantes Filipinos!"

Mrs. Mendoza later called up the manager of Aer Lingus and requested that they provide her and
her husband means to get to Lourdes, but the request was denied. A stranger, however, advised
them to take a train, which the two did; despite the third class accommodations and lack of food
service, they reached Lourdes the following morning.
During the train trip the respondents had to suffer draft winds as they wore only minimum
clothing, their luggage having gone ahead with the Aer Lingus plane. They spent $50 for that
train trip; their plane passage was worth $43.35.

On March 17, 1966 the respondents, referring to KLM as the principal of Aer Lingus, filed a
complaint for damages with the Court of First Instance of Manila arising from breach of contract
of carriage and for the humiliating treatment received by them at the hands of the Aer Lingus
manager in Barcelona. After due hearing, the trial court awarded damages to the respondents.

The CA affirmed mostly the trial court’s ruling.

Hence, the present recourse by the KLM.

The KLM prays for exculpation from damages on the strength of the following particulars which
were advanced to but rejected by the Court of Appeals:

(a) The air tickets issued to the respondents stipulate that carriage thereunder is subject to the
"Convention for the Unification of Certain Rules Relating to International Transportation by
Air," otherwise known as the "Warsaw Convention," to which the Philippine Government is a
party by adherence, and which pertinently provides.1

ART. 30. (1) In the case of transportation to be performed by various successive

carriers and failing within the definition set out in the third paragraph of Article I,
each carrier who accepts passengers, baggage, or goods shall be subject to the
rules set out in the convention, and shall be deemed to be one of the contracting
parties to the contract of transportation insofar as the contract deals with that part
of transportation which is performed under his supervision.2

(2) In the case of transportation of this nature, the passenger or his

representative can take action only against the carrier who performed the
transportation during which the accident or the delay occured, save in the case
where, by express agreement, the first carrier has assumed liability for the whole
journey. (emphasis supplied)

(b) On the inside front cover of each ticket the following appears under the heading "Conditions
of Contract":

1 ... (a) Liability of carrier for damages shall be limited to occurrences on its own
line, except in the case of checked baggage as to which the passenger also has a
right of action against the first or last carrier. A carrier issuing a ticket or checking
baggage for carriage over the lines of others does so only as agent..

(c) All that the KLM did after the respondents completed their arrangements with the travel
agency was to request for seat reservations among the airlines called for by the itinerary
submitted to the KLM and to issue tickets for the entire flight as a ticket-issuing agent.
The respondents rebut the foregoing arguments, thus:

(a) Article 30 of the Warsaw Convention has no application in the case at bar which involves,
not an accident or delay, but a willful misconduct on the part of the KLM's agent, the Aer
Lingus. Under article 25 of the same Convention the following is prescribed:

ART. 25. (1) The carrier shall not be entitled to avail himself of the provisions of
this convention which exclude or limit his liability, if the damage is caused by
his willful misconduct or by such default on his part as, in accordance with the
law of the court to which the case is submitted, is considered to be equivalent to
willful misconduct.3

(2) Similarly, the carrier shall not be entitled to avail himself of the said
provisions, if the damage is caused under the same circumstances by any agent of
the carrier acting within the scope of his employment. (emphasis by respondents)

(b) The condition in their tickets which purportedly excuse the KLM from liability appears in
very small print, to read which, as found by the Court of Appeals, one has practically to use a
magnifying glass.

(c) The first paragraph of the "Conditions of Contract" appearing identically on the KLM tickets
issued to them idubitably shows that their contract was one of continuous air transportation
around the world:

1 ... "carriage" includes the air carrier issuing this ticket and all carriers that carry
or undertake to carry the passenger or his baggage hereunder or perform any other
service incidental to such air carriage... Carriage to be performed hereunder by
several successive carrier is regarded as a single operation.

(d) The contract of air transportation was exclusively between the respondents and the KLM, the
latter merely endorsing its performance to other carriers, like Aer Lingus, as its subcontractors or
agents, as evidenced by the passage tickets themselves which on their face disclose that they are
KLM tickets. Moreover, the respondents dealt only with KLM through the travel agency.

HELD:

1. The applicability insisted upon by the KLM of article 30 of the Warsaw Convention cannot be
sustained. That article presupposes the occurrence of either an accident or a delay, neither of
which took place at the Barcelona airport; what is here manifest, instead, is that the Aer Lingus,
through its manager there, refused to transport the respondents to their planned and
contracted destination.

2. The argument that the KLM should not be held accountable for the tortious conduct of Aer
Lingus because of the provision printed on the respondents' tickets expressly limiting the KLM's
liability for damages only to occurrences on its own lines is unacceptable. As noted by the Court
of Appeals that condition was printed in letters so small that one would have to use a magnifying
glass to read the words. Under the circumstances, it would be unfair and inequitable to charge the
respondents with automatic knowledge or notice of the said condition so as to preclude any
doubt that it was fairly and freely agreed upon by the respondents when they accepted the
passage tickets issued to them by the KLM.

3. Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets of
the respondents provide that the carriage to be performed thereunder by several successive
carriers "is to be regarded as a single operation," which is diametrically incompatible with the
theory of the KLM that the respondents entered into a series of independent contracts with the
carriers which took them on the various segments of their trip. This position of KLM we reject.
The respondents dealt exclusively with the KLM which issued them tickets for their entire trip
and which in effect guaranteed to them that they would have sure space in Aer Lingus flight 861.

4. The breach of that guarantee was aggravated by the discourteous and highly arbitrary conduct
of an official of the Aer Lingus which the KLM had engaged to transport the respondents on the
Barcelona-Lourdes segment of their itinerary. It is but just and in full accord with the policy
expressly embodied in our civil law which enjoins courts to be more vigilant for the protection of
a contracting party who occupies an inferior position with respect to the other contracting party,
that the KLM should be held responsible for the abuse, injury and embarrassment suffered by the
respondents at the hands of a supercilious boor of the Aer Lingus.

ACCORDINGLY, the judgment of the Court of Appeals dated August 14, 1969 is affirmed, at
KLM's cost.