CONTRACTS

I. GENERAL TERMS

Article 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

DEFINITION

Obligation

• An obligation is a juridical relation whereby a person (called the creditor) may demand from another {called the
debtor) the observance of a determined conduct (the giving, doing, or not doing), and in case of breach, may
demand satisfaction from the assets of the latter.”

Contract

• A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to
give something or ta render some service.”

Viewpoint of Conflict of Laws

obligations and contracts as defined above include:

1. those transferring real rights (like the sale of property)

2. those which: are purely civil commercial

II. LEX LOCI INTENTIONIS

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

INTRINSIC VALIDITY OF CONTRACTS

Definition

• Intrinsic validity refers to the nature, content and effects of the contract

Governing law

• The intrinsic validity of a contract (consideration, cause, interpretation of the instruments, and the nature and
amount of damages for breach or non-performance) is governed by the “proper law of the contract” (lex contractus)
which is either voluntarily agreed upon by the parties (lex loci voluntatis) or the law intended by them expressly or
implicitly (lex loci intentionis).
• There are some aspects of a contract that cannot be subject to stipulation such as form and capacity, however in
all other aspects the free will of the parties may properly govern.
• The rule is implicity recognized in:
o Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or
public policy.
• The law selected may be expressly agreed upon (here there would be little difficulty) or may be implied (from such
factors as the following: the law having the most substantial connection with the transaction; the nationality and
 domicile of the parties: the law most favorable for the effectivity or efficacy of the contract for we should presume
that the parties intended to be bound by their agreement)

A. HAGUE PRINCIPLES ON CHOICE OF LAW IN INTL COMMERCIAL CONTRACTS.

1. When parties enter into a contract that has connections with more than one State, the question of which set of
legal rules governs the transaction necessarily arises. The answer to this question is obviously important to a court
or arbitral tribunal that must resolve a dispute between the parties but it is also important for the parties
themselves, in planning the transaction and performing the contract, to know the set of rules that governs their
obligations.

2. Determination of the law applicable to a contract without taking into account the expressed will of the parties to
the contract can lead to unhelpful uncertainty because of differences between solutions from State to State. For
this reason, among others, the concept of “party autonomy” to determine the applicable law has developed and
thrived.

3. Party autonomy, which refers to the power of parties to a contract to choose the law that governs that contract,
enhances certainty and predictability within the parties’ primary contractual arrangement and recognises that
parties to a contract may be in the best position to determine which set of legal principles is most suitable for their
transaction. Many States have reached this conclusion and, as a result, giving effect to party autonomy is the
predominant view today. However, this concept is not yet applied everywhere.

4. The Hague Conference on Private International Law (“the Hague Conference”) believes that the advantages of
party autonomy are significant and encourages the spread of this concept to States that have not yet adopted it,
or have done so with significant restrictions, as well as the continued development and refinement of the concept
where it is already accepted.

5. Accordingly, the Hague Conference has promulgated the Hague Principles on Choice of Law in International
Commercial Contracts (“the Principles”). The Principles can be seen both as an illustration of how a comprehensive
choice of law regime for giving effect to party autonomy may be constructed and as a guide to “best practices” in
establishing and refining such a regime.

CONSTRUCTION AND INTERPRETATION OF CONTRACTS

Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulations shall control.

If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.

Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent
acts shall be principally considered.

B. KINDS AND ISSUES

C. CHOICE OF LAW STIPULATIONS

• The principle of autonomy of contracts allows the parties to stipulate the law that shall govern their contractual
relations.
• They may provide a foreign law or a local law.
• They may also provide two or more foreign laws govern their relationship, or that a foreign law and local law be
made applicable to their contract.
• They may also provide that the stipulated law may have general or limited applicability.
If the parties do not specify the extent of applicability of their chosen law, the chosen law will normally
apply to the following concerns:
 a. Interpretation
b. Rights and obligations arising from the contract
c. Performance and the consequences of non-performance, including the assessment of damages
d. The various ways of extinguishing obligations, and prescription and limitation of periods
e. Validity and consequences of invalidity of the contract
f. Burden of proof and legal presumptions
g. Pre-contractual obligations

ISSUES: VENUE IN LITIGATION, CONTRACTS WITH ADHESION CLAUSES, CONSTITUTIONAL LIMITATION ON CHOICE
OF LAW.

Limitations in choosing the law to govern a contract

1. The choice may be made expressly or impliedly. If of two possible choices, one law provides certainly specific remedies
in case of breach, and the other does not, it is understood that the first law applies if the contract makes mention of
said remedies.
2. Several laws may be selected, each of which governs different elements of the transaction
3. Cannot select a law that has no connection with the transaction
4. If the law selected should change, it is that law, as changed, that will apply, for we must presume that at the tine of
contracting, the parties were cognizant of the dynamic quality of law.
• XPN: if the change is so revolutionary that it was never contemplated by the parties. In such a case, we must
consider that law intended.
5. If under the law selected, the contract is legal, but in the place of performance, it is illegal, the selected law must
naturally prevail, and the contract should therefore be considered legal.
6. Assuming that the law of the place of performance can be ascertained (as when there is an express stipulation on this
point), still questions of substantial and essential validity (e.g., whether the contract is valid or voidable or void) should
be governed by the proper law of the contract
• only such minor details (e.g., payment during reasonable business hours), should be governed by the law of
the place of performance (the lex loci solutionis).
7. While parties may stipulate on proper law, they cannot stipulate on jurisdiction of courts

Other Theories on What Should Govern Intrinsic Validity:

Theory Advantages Defects

1. Theory of lex loci
celebrationis
2. Theory of lex nationalii
Place of execution easily - Makes possible the
ascertained. evasion of national law
- Place of contracting may
Once this principle is universally have very little
adhered to, the parties would substantial connection
know what law will apply, thus with the transaction
facilitating commercial
agreements.
- Lex Nationalii may not
be easily determined
- Investigation of Lex
Nationalii may be time
consuming
- Nationality of parties
may be different
(All these impede commercial
transactions)
 3. Theory of Lex Loci Finds justification in inherent and - There may be several
Solutionis natural connection of the place of places of performance
performance with the contract for different parts of the
itself. contract
- place of performance
been may not have been
previously fixed

What is the Theory of Prof Minor?

Different laws govern different parts of the contract
1. Perfection - lex loci celebrationis (where celebrated)
2. Sufficiency and validity of cause or consideration - lex loci considerationis (where consideration located)
3. Questions of performance - lex loci solutionis (place of performance)

d. Exceptions to chosen law as governing law:

Manila Resources Corp vs Santos was an overseas worker in Oman. He was recruited by Palace Hotel in
NLRC Japan. Due to higher pay and benefits, Santos agreed to the hotel’s job offer
and so he started working there in November 1988. The employment contract
between him and Palace Hotel was however without the intervention of the
Philippine Overseas Employment Administration (POEA). In August 1989,
Palace Hotel notified Santos that he will be laid off due to business reverses.
In September 1989, he was officially terminated.
Santos filed a complaint for illegal dismissal against Manila Hotel Corporation
(MHC) and Manila Hotel International, Ltd. (MHIL). The Palace Hotel was
impleaded but no summons were served upon it. MHC is a government owned
and controlled corporation. It owns 50% of MHIL, a foreign corporation (Hong
Kong). MHIL manages the affair of the Palace Hotel.
Issue: Whether or not the NLRC has jurisdiction over the case.
Ruling: No.
i. The only link that the Philippines has in this case is the fact that Santos
is a Filipino;
ii. Santos’ contract with the Palace Hotel was not entered into in the
Philippines;
iii. Santos’ contract was entered into without the intervention of the POEA
(had POEA intervened, NLRC still does not have jurisdiction because it
will be the POEA which will hear the case);
iv. MHIL and the Palace Hotel are not doing business in the Philippines; their
agents/officers are not residents of the Philippines;

Pakistan International Facts: Pakistan IA entered into two separate contracts with respondents.
Airlines vs Ople Respondents trained in Pakistan and began working as flight attendants. After
1 year and 4 months remaining in their contracts, PIA terminated the services
of the respondents by virtue of their contract stipulation that: PIA serves the
right to terminate the agreement at any time by xxx paying the Ee wages
equivalent to one month’s salary. Respondents filed a complaint for illegal
dismissal.
Issue:
i. Whether the principle of party autonomy in contracts is absolute.
ii. Whether Pakistani law is the applicable law pursuant to par 10 of the
contract stating: agreement is governed under and by the laws of
Pakistan.
Ruling:
 i. No. The rule in Art 1306 of the Civil Code states: ART. 1306. The
contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient provided they are not
contrary to law, morals, good customs, public order, or public policy.
ii. No. It is affected with public interest (labor law). Moreover:
a. The contract was not only executed in the Philippines. It was
also performed here, at least, partially.
b. Respondents are Filipino citizens
c. Petitioner is licensed to do business and actually doing
business in the Philippines
d. Respondents were based in the Philippines in between their
assigned flights to Middle East and Europe.
Manila Resources Respondent applied for overseas employment with respondent Manila
Development Corp vs Resource Development Corporation (MANRED). The complainant left Manila
NLRC and arrived in Riyadh, Saudi Arabia. He reported for duty at OBALCO on 30
January 1982 and was given a final examination concerning his qualifications
and experience before starting to work. The respondents claim that by his own
verbal and written admission, he failed to meet the qualifications and
experiences needed for the work. It was stated that the summary of work
experience indicated in his hand written bio-data were not useful or suitable
for the mechanical engineering work at the Royal Terminal. On the same day,
he was advised that OBALCO was not willing to employ him for US$1,000.00
per month but he would be retained if he was willing to accept US$360.00 per
month as basic pay. He pleaded that his salary be as provided in his
employment contract or reduced by 20% only, but this was turned down.
Issue: Saudi Arabia or Philippine laws?
Ruling: We had already ruled that Philippine laws and regulations cannot be
rendered illusory by the parties agreeing on some other laws to govern their
relationship. In Pakistan International Airport case, we ruled that: A contract
freely entered into should, of course, be respected, as PIA argues, since a
contract is the law between the parties. [Henson vs. Intermediate Appellate
Court, 148 SCRA 11 (1987)] The principle of party autonomy in contracts is
not, however, an absolute principle. The rule in Article 1306, of our Civil Code
in that the contracting parties may establish such stipulations as they may
deem convenient, ‘provided they are not contrary to law, morals, good
customs, public order or public policy.’

e. Forum Clause:

Compagnie de Commerce
vs Hamburg America
HCBC vs Sherman Facts: Eastern Book Supply obtained a loan from HSBC guaranteed by two
directors. Eastern failed to pay. HSBC filed a collection case. The director-
guarantors filed a motion to dismiss on the ground of lack of jurisdiction. There
is a clause stipulating that jurisdiction over any dispute arising from the
transaction is vested with the Singaporean courts. HSBC filed suit against the
directors in the Philippines.

Ruling: Jurisdiction, which finds its source in sovereignty, cannot be bargained

away by the parties. The State can assume jurisdiction when there is a
reasonable basis of exercising it. To be reasonable, the jurisdiction must be
based on some minimum contacts that will not offend traditional notions on
fair play and substantial justice. In the present case, the minimum contact
considered is the Philippine residence of the private respondents. In assuming
jurisdiction, SC held that the parties did not stipulate that only the courts of
Singapore, to the exclusion of all the rest, has jurisdiction.
 Because jurisdiction cannot be stipulated upon, the choice of jurisdiction was
treated as a choice of venue. And applying thus, the choice of venue is only
permissive, in the absence of restrictive words to lend exclusivity to the chosen
forum.

Restatement Second, COL, Section 80, 3. Actions in Another Place by Agreement:

Puromines, INC vs CA Facts: Puromines, Inc. and Makati Agro Trading, Inc. entered into a contract
with private respondents Philipp Brothers Oceanic, Inc. for the sale of prilled
Urea in bulk. The Sales Contract provided, among others 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. XXXX"
When the shipment covered by Bill of Lading 1 and 3 were discharged in
Manila, it was found to be in bad order and condition, caked, hardened and
lumpy, discoloured and contaminated with rust and dirt.
Puromines filed a complaint against Philipp in the RTC. Philipp filed a motion
to dismiss on the ground that Petitioner should comply with the arbitration
clause in the sales contract. Puromines opposed contending that the sales
contract does not include contract of carriage, therefore, the latter is not
covered by the agreement on arbitration.
Issue: Whether or not the arbitration clause in the sales contract covers claims
for violations of contract of carriage.
Ruling: Yes. The sales contract is comprehensive enough to include claims for
damages arising from carriage and delivery of the goods. Puromines derives
its right to the cargo from the bill of lading which is the contract of
affreightment together with the sales contract. Consequently, it is bound by
the provisions and terms of the said bill of lading and of the arbitration clause
incorporated in the sales contract.

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.

Arbitration has been held valid and constitutional. The rule now is that unless
the agreement is such as absolutely to close the doors of the courts against
the parties, which agreement would be void, the courts will look with favor
upon such amicable arrangements and will only interfere with great reluctance
to anticipate or nullify the action of the arbitrator.
Francisco vs Stolt Facts: Francisco (Filipino) was injured while working on board the vessel.
Achievement Under the employment contract, “claims and disputes arising from this
employment,” must be tried under the Philippines. Francisco sued the
respondent in Louisiana, the place where he sustained injury.
Issue: Whether Francisco was compelled to arbitrate his claim in the Phil.
Ruling: Francisco must arbitrate his claim in the Philippines. The contract
clearly provides remedies for work-related personal injuries and states in their
contract that claims and disputes arising from this employment are subject to
arbitration in the Philippines. The arbitration provision is not by its language
limited to contract claims but cover ALL CLAIMS arising from the employment.

Adhesion contracts:

Pan Am World Airways vs While standing in line to board the flight at the Guam airport, Rapadas was
Rapadas ordered by PanAm’s handcarry control agent to check-in his Samsonite attache
case. 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.
Upon arriving in Manila, Rapadas claimed and was given all his checked-in
baggages except the attache’ case. Rapadas received a letter from PanAm’s
counsel offering to settle the claim for the sum of $160.00. Rapadas refused
to accept the settlement.
Pan America’s Contention: 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.
Rapadas’ Contention: he is entitled to as much damages as those awarded by
the court and affirmed by the respondent appellate court.
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 Convention.
Ruling: Petitioner is required to pay Rapadas US$400.
Nowhere in the Warsaw Convention, as amended, is such a detailed notice of
baggage liability limitations required. Nevertheless, it should become a
common, safe and practical custom among air carriers to indicate beforehand
the precise sums equivalent to those fixed by Article 22 (2) of the Convention.
The Convention governs the availment of the liability limitations where the
baggage check is combined with or incorporated in the passenger ticket which
complies with the provisions of Article 3, par. 1(c). (Article 4, par. 2) In the
case at bar, the baggage check is combined with the passenger ticket in one
document of carriage.
Nowhere in the Warsaw Convention, as amended, is such a detailed notice of
baggage liability limitations required. Nevertheless, it should become a
common, safe and practical custom among air carriers to indicate beforehand
the precise sums equivalent to those fixed by Article 22 (2) of the Convention.
The Convention governs the availment of the liability limitations where the
baggage check is combined with or incorporated in the passenger ticket which
complies with the provisions of Article 3, par. 1(c). (Article 4, par. 2) In the
case at bar, the baggage check is combined with the passenger ticket in one
document of carriage. Pan American World Airways, Inc. vs. Rapadas, 209
SCRA 67, G.R. No. 60673 May 19, 1992

f. Waiver of Renvoi -

Art 8 of the Hague Principles on Choice of Law in International Commercial Contracts

Article 8 – Exclusion of renvoi

A choice of law does not refer to rules of private international law of the law chosen by the parties unless the parties
expressly provide otherwise.

Article 9 – Scope of the chosen law

1. The law chosen by the parties shall govern all aspects of the contract between the parties, including but not limited to
–

a) interpretation;

b) rights and obligations arising from the contract;

c) performance and the consequences of non-performance, including the assessment of

damages;

d) the various ways of extinguishing obligations, and prescription and limitation periods;

e) validity and the consequences of invalidity of the contract;

f) burden of proof and legal presumptions;

g) pre-contractual obligations.

2. Paragraph 1 e) does not preclude the application of any other governing law supporting the formal validity of the
contract.

Prescription under Warsaw:

Claim for damages must be brought within two years reckoned [a] from the date of arrival at the destination; or [b] from
the date on which the aircraft ought to have arrived; or [c] from the date on which the carriage stopped, otherwise, right
to damages shall be extinguished.

Despite the express mandate that an action for damages should be filed within 2 years from the arrival at the place of
destination, such rule shall not be applied where delaying tactics were employed by airline itself in a case where a passenger
wishes to settle his complaint out-of-court but the airline gave him the runaround, answering the passenger’s letters but
not giving in to his demands, hence, giving the passenger no time to institute the complaint within the reglementary period
(United Airlines vs. Uy, G.R. No. 127768, Nov. 19, 1999).

Japan Airlines va CA Private respondents boarded a JAL flight in San Francisco,

California bound for Manila. It included an overnight stopover at
Narita, Japan at JAL’s expense. Due to the Mt. Pinatubo eruption,
private respondents’ trip to Manila was cancelled. JAL rebooked
all the Manila-bound passengers and paid for the hotel expenses
of their unexpected overnight stay. The flight of private
respondents was again cancelled due to NAIA’s indefinite closure.
JAL informed the respondents that it would no longer defray their
hotel and accommodation expense during their stay in Narita. The
respondents were forced to pay for their accommodations and
meal expenses for 5 days.
Ruling: JAL did not breach contract of carriage. It is only liable to
nominal, but not moral and exemplary damages.
Accordingly, there is no question that when a party is unable to
fulfill his obligation because of “force majeure,” the general rule
is that he cannot be held liable for damages for non-
performance.6 Corollarily, when JAL was prevented from
resuming its flight to Manila due to the effects of Mt. Pinatubo
eruption, whatever losses or damages in the form of hotel and
meal expenses the stranded passengers incurred, cannot be
charged to JAL. Yet it is undeniable that JAL assumed the hotel
expenses of respondents for their unexpected overnight stay on
June 15, 1991.
Admittedly, to be stranded for almost a week in a foreign land
was an exasperating experience for the private respondents. To
be sure, they underwent distress and anxiety during their
unanticipated stay in Narita, but their predicament was not due
to the fault or negligence of JAL but the closure of NAIA to
international flights. Indeed, to hold JAL, in the absence of bad
faith or negligence, liable for the amenities of its stranded
passengers by reason of a fortuitous event is too much of a
burden to assume.
However, it is not absolved total liability, and must pay nominal
damages. JAL reneged on its obligation to look after the comfort
and convenience of its passengers when it declassified private
respondents from “transit passengers” to “new passengers” as a
result of which private respondents were obliged to make the
necessary arrangements themselves for the next flight to Manila.
United Airlines vs Uy Respondent checked in together with his luggage one piece of
which was found to be overweight at the airline counter. Then, in
a loud voice in front of the milling crowd, the Ee told respondent
to repair his things and transfer some of them to the light ones.
Respondent acceded but his luggage was still overweight.
Petitioner billed him overweight charges but its employee refused
to honor the miscellaneous charges under MCD which he offered
to pay with. Not wanting to leave without his luggage, he paid
with his credit card.
Upon arrival in manila, he discovered that one of his bags had
been slashed and its contents stolen. He notified petitioner of his
loss and requested reimbursement. Petitioner paid for his loss
based on the maximum liability per pound. Respondent
considered the amount grossly inadequate.
Respondent filed a complaint for damages against petitioner
Airline. Petitioner moved to dismiss the complaint invoking the
provisions of Article 29 of the Warsaw Convention.
Respondent countered that according to par. 2 of Article 29, “the
method of calculating the period of limitation shall be determined
by the law of the court to which the case is submitted.”
Ruling: Within our jurisdiction we have held that the Warsaw
Convention can be applied, or ignored, depending on the peculiar
facts presented by each case. Thus, we have ruled that the
Convention’s provisions do not regulate or exclude liability for
other breaches of contract by the carrier or misconduct of its
officers and employees, or for some particular or exceptional type
of damage. Neither may the Convention be invoked to justify the
disregard of some extraordinary sort of damage resulting to a
passenger and preclude recovery therefor beyond the limits set
by said Convention. Likewise, we have held that the Convention
does not preclude the operation of the Civil Code and other
pertinent laws. It does not regulate, much less exempt, the carrier
from liability for damages for violating the rights of its passengers
under the contract of carriage, especially if willful misconduct on
the part of the carrier’s employees is found or established.
Respondent’s complaint reveals that he is suing on two (2) causes
of action: (a) the shabby and humiliating treatment he received
from petitioner’s employees at the San Francisco Airport which
caused him extreme embarrassment and social humiliation; and,
(b) the slashing of his luggage and the loss of his personal effects
amounting to US $5,310.00.
While his second cause of action—an action for damages arising
from theft or damage to property or goods—is well within the
bounds of the Warsaw Convention, his first cause of action—an
action for damages arising from the misconduct of the airline
employees and the violation of respondent’s rights as
passenger—clearly is not.
Consequently, insofar as the first cause of action is concerned,
respondent’s failure to file his complaint within the two (2)-year
limitation of the Warsaw Convention does not bar his action since
petitioner airline may still be held liable for breach of other
provisions of the Civil Code which prescribe a different period or
procedure for instituting the action, specifically, Art. 1146 thereof
which prescribes four (4) years for filing an action based on torts.
Despite the express mandate of Article 29 of the Warsaw
Convention that an action for damages should be filed within two
(2) years from the arrival at the place of destination, such rule
shall not be applied where the airline employed delaying tactics
employed by petitioner airline itself. Thus, private respondent’s
 second cause of action cannot be considered as timebarred under
Art. 29 of the Warsaw Convention.

III. LEX LOCI CONTRACTUS

The Philippines follows the lex loci contractus rule as embodied in Article 17 of the Civil Code which states to wit:

“The forms and solemnities of contracts, wills, and other public instruments shall be governed by the laws of the country
in which they are executed. When the acts referred to are executed before diplomatic or consular officials of the Republic
of the Philippines in a foreign country, the solemnities established by Philippine Laws shall be observed in their execution.”

Reason

General Milling Corporation vs. Torres

FACTS:
Earl Timothy Cone is a US citizen, who was hired by General Milling as a sports consultant and assistant coach. He
possessed an alien employment permit which was changed to pre-arranged employee by the Board of Special Inquiry of
the Commission on Immigration and Deportation. GMC requested that Cone’s employment permit be changed to a full-
fledged coach, which was contested by The Basketball Coaches Association of the Philippines. Alleging that GMC failed
to show that there is no competent person in the Philippines to do the coaching job. Secretary of Labor cancelled Cone’s
employment permit.

ISSUE:
Whether or not the Secretary of Labor act with grave abuse of discretion in revoking Cone’s Alien Employment Permit?

HELD:
The Secretary of Labor did not act with grave abuse of discretion in revoking Cone’s Alien Employment Permit. GMC’s
claim that hiring of a foreign coach is an employer’s prerogative has no legal basis. Under Article 40 of the Labor Code,
an employer seeking employment of an alien must first obtain an employment permit from the Department of Labor.
Petitioner GMC’s right to choose whom to employ is, of course, limited by the statutory requirement of an alien
employment permit.
Petitioners will not find solace in the equal protection clause of the Constitution. As pointed out by the Solicitor-General,
no comparison can be made between petitioner Cone and Mr. Norman Black as the latter is “a long time resident of the
country,” and thus, not subject to the provisions of Article 40 of the Labor Code which apply only to “non-resident aliens.”
In any case, the term “non-resident alien” and its obverse “resident alien,” here must be given their technical connotation
under our law on immigration.

THE GOVT OF THE PHILIPPINE ISLANDS vs. FRANK

FACTS:

In 1903, in the city of Chicago, Illinois, Frank entered into a contract for a period of 2 years with the Plaintiff, by which
Frank was to receive a salary as a stenographer in the service of the said Plaintiff, and in addition thereto was to be paid
in advance the expenses incurred in traveling from the said city of Chicago to Manila, and one-half salary during said
period of travel. Said contract contained a provision that in case of a violation of its terms on the part of Frank, he should
become liable to the Plaintiff for the amount expended by the Government by way of expenses incurred in traveling from
Chicago to Manila and the one-half salary paid during such period.

Frank entered upon the performance of his contract and was paid half-salary from the date until the date of his arrival
in the Philippine Islands.
Thereafter, Frank left the service of the Plaintiff and refused to make a further compliance with the terms of the contract.
The Plaintiff commenced an action in the CFI-Manila to recover from Frank the sum of money, which amount the Plaintiff
claimed had been paid to Frank as expenses incurred in traveling from Chicago to Manila, and as half-salary for the
period consumed in travel.
It was expressly agreed between the parties to said contract that Laws No. 80 and No. 224 should constitute a part of
said contract.

The Defendant filed a general denial and a special defense, alleging in his special defense that
(1) the Government of the Philippine Islands had amended Laws No. 80 and No. 224 and had thereby materially altered
the said contract, and also that
(2) he was a minor at the time the contract was entered into and was therefore not responsible under the law.
the lower court rendered a judgment against Frank and in favor of the Plaintiff for the sum of 265. 90 dollars

ISSUE:
1. Did the amendment of the laws altered the tenor of the contract entered into between Plaintiff and Defendant?
2. Can the defendant allege minority/infancy?

HELD: the judgment of the lower court is affirmed

1. NO; It may be said that the mere fact that the legislative department of the Government of the Philippine Islands had
amended said Acts No. 80 and No. 224 by Acts No. 643 and No. 1040 did not have the effect of changing the terms of
the contract made between the Plaintiff and the Defendant. The legislative department of the Government is expressly
prohibited by section 5 of the Act of Congress of 1902 from altering or changing the terms of a contract. The right which
the Defendant had acquired by virtue of Acts No. 80 and No. 224 had not been changed in any respect by the fact that
said laws had been amended. These acts, constituting the terms of the contract, still constituted a part of said contract
and were enforceable in favor of the Defendant.
2. NO; The Defendant alleged in his special defense that he was a minor and therefore the contract could not be enforced
against him. The record discloses that, at the time the contract was entered into in the State of Illinois, he was an adult
under the laws of that State and had full authority to contract. Frank claims that, by reason of the fact that, under that
laws of the Philippine Islands at the time the contract was made, made persons in said Islands did not reach their majority
until they had attained the age of 23 years, he was not liable under said contract, contending that the laws of the
Philippine Islands governed.
It is not disputed — upon the contrary the fact is admitted — that at the time and place of the making of the contract in
question the Defendant had full capacity to make the same. No rule is better settled in law than that matters bearing
upon the execution, interpretation and validity of a contract are determined b the law of the place where the contract is
made. Matters connected with its performance are regulated by the law prevailing at the place of performance. Matters
respecting a remedy, such as the bringing of suit, admissibility of evidence, and statutes of limitations, depend upon the
law of the place where the suit is brought.

Triple Eight Integrated Services Inc. vs. NLRC

FACTS:

Osdana, a Filipino citizen, was recruited by Triple Eight for employment with the latter’s principal, Gulf Catering Company
(GCC), a firm based in the Kingdom of Saudi Arabia. The employment contract (originally as “food server” but later
changed to “waitress”) was executed in the Philippines but was to be performed in Riyadh. Once in Riyadh, however,
Osdana was made to perform strenuous tasks (washing dishes, janitorial work), which were not included in her
designation as a waitress. Because of the long hours and strenuous nature of her work, she suffered from Carpal Tunnel
Syndrome, for which she had to undergo surgery. But during her weeks of confinement at the hospital for her recovery,
she was not given any salary. And after she was discharged from the hospital, GCC suddenly dismissed her from work,
allegedly on the ground of illness. She was not given any separation pay nor was she paid her salaries for the periods
when she was not allowed to work. Thus, upon her return to the Philippines, she filed a complaint against Triple Eight,
praying for unpaid and underpaid salaries, among others.
The LA ruled in her favour, which ruling NLRC affirmed. Hence, this petition for certiorari.

ISSUE: Whether or not Osdana was illegally dismissed

HELD:
The petition must fail.

Disease as a Ground for Dismissal

Under Article 284 of the Labor Code and the Omnibus Rules Implementing the Labor Code, for disease to be a valid
ground for termination, the following requisites must be present:

1. The disease must be such that employee’s continued employment is prohibited by law or prejudicial to his health
as well as to the health of his co-employees
2. There must be a certification by competent public authority that the disease is of such nature or at such a stage
that it cannot be cured within a period of 6 months with proper medical treatment

In the first place, Osdana’s continued employment despite her illness was not prohibited by law nor was it prejudicial
to her health, as well as that of her co-employees. In fact, the medical report issued after her second operation stated
that “she had very good improvement of the symptoms.” Besides, “Carpal Tunnel Syndrome” is not a contagious disease.

On the medical certificate requirement, petitioner erroneously argues that “private respondent was employed in Saudi
Arabia and not here in the Philippines. Hence, there was a physical impossibility to secure from a Philippine public health
authority the alluded medical certificate that public respondent’s illness will not be cured within a period of six months.”

Petitioner entirely misses the point, as counsel for private respondent states in the Comment. The rule simply prescribes
a “certification by a competent public health authority” and not a “Philippine public health authority.

If, indeed, Osdana was physically unfit to continue her employment, her employer could have easily obtained a
certification to that effect from a competent public health authority in Saudi Arabia, thereby heading off any complaint
for illegal dismissal.

The requirement for a medical certificate under Article 284 of the Labor Code cannot be dispensed with; otherwise, it
would sanction the unilateral and arbitrary determination by the employer of the gravity or extent of the employee’s
illness and thus defeat the public policy on the protection of labor. As the Court observed in Prieto v. NLRC, “The Court
is not unaware of the many abuses suffered by our overseas workers in the foreign land where they have ventured,
usually with heavy hearts, in pursuit of a more fulfilling future. Breach of contract, maltreatment, rape, insufficient
nourishment, sub-human lodgings, insults and other forms of debasement, are only a few of the inhumane acts to which
they are subjected by their foreign employers, who probably feel they can do as they please in their country. While these
workers may indeed have relatively little defense against exploitation while they are abroad, that disadvantage must not
continue to burden them when they return to their own territory to voice their muted complaint. There is no reason
why, in their own land, the protection of our own laws cannot be extended to them in full measure for the redress of
their grievances.”

Which law should apply: Lex Loci Contractus

Petitioner likewise attempts to sidestep the medical certificate requirement by contending that since Osdana was working
in Saudi Arabia, her employment was subject to the laws of the host country. Apparently, petitioner hopes to make it
appear that the labor laws of Saudi Arabia do not require any certification by a competent public health authority in the
dismissal of employees due to illness.

Again, petitioner’s argument is without merit.

First, established is the rule that lex loci contractus (the law of the place where the contract is made) governs in this
jurisdiction. There is no question that the contract of employment in this case was perfected here in the Philippines.
Therefore, the Labor Code, its implementing rules and regulations, and other laws affecting labor apply in this
case. Furthermore, settled is the rule that the courts of the forum will not enforce any foreign claim obnoxious to the
forum’s public policy. Here in the Philippines, employment agreements are more than contractual in nature. The
Constitution itself, in Article XIII Section 3, guarantees the special protection of workers.

This public policy should be borne in mind in this case because to allow foreign employers to determine for and by
themselves whether an overseas contract worker may be dismissed on the ground of illness would encourage illegal or
arbitrary pre-termination of employment contracts.

Bagong Fil Overseas Corp v. NLRC

Facts:
 The shipboard employment contract... was executed in this country between Pancho and Bagong Filipinas Overseas
Corporation, the local agent of Golden Star Shipping.
Pancho was hired as an oiler in... the M/V Olivine for 12 months with a gross monthly wage of US$195.
In October, 1978, he had a cerebral stroke. He was rushed to the hospital while the vessel was docked at Gothenberg,
Sweden. He was repatriated to the Philippines and confined at the San Juan de Dios Hospital. He died on December
13, 1979.

The National Seamen Board awarded his widow

P20,000 as disability compensation benefits pursuant to the above-mentioned employment contract plus P2,000 as
attorney's fees. Proserfina appealed to the National Labor Relations Commission which awarded her $621... times 36
months or its equivalent in Philippine currency plus 10% of the benefits as attorney's fees. Golden Star Shipping
assailed that decision by certiorari.
Issues:
whether the shipboard employment contract or Hongkong law should govern the amount of death compensation due
to the wife of Guillermo Pancho who was employed by Golden Star Shipping, Ltd. a Hongkong based firm.
Ruling:
We hold that the shipboard employment contract is controlling in this case.
The contract provides that the beneficiaries of the seaman are entitled to P20,000 "over and above the benefits" for
which the Philippine Government is liable under Philippine law.

Hongkong law on workmen's compensation is not the applicable law.

The case of Norse Management Co. vs. National Seamen Board, G.R. No. 54204, September 30, 1982, 117 SCRA 486
cannot be a precedent because it was expressly stipulated in the employment contract in that case... that the
workmen's compensation payable to the employee should be in accordance with Philippine Law or the Workmen's
Insurance Law of the country where the vessel is registered "whichever is greater".

Exceptions to applying lex loci celebrationis:

▪ If the contract involves say the sale of property, the formalities of the lex situs (not that of the lex loci
celebrationis) must be complied with

▪ If the contract is celebrated in a foreign country (but within the premises of the Philippine embassy or
consulate in said foreign state), Philippine formalities must be complied with, because under the principle
of exterritoriality, it is as if the embassy or consulate is considered an extension of Philippine territory.

Thus, the second paragraph of Art. 17 of the Civil Code read: “When the acts referred to are executed
before the diplomatic or consular officials of the Republic of the Philippines; in a foreign country, the
solemnities established by Philippine laws shall be observed: in their execution.”

NOTE: The principle of exterritoriality is contradistinguished from that of the éxtraterritoriality. The latter
principle is the exemption of foreign persons from, the laws and jurisdictions of the state in which they
presently reside, an exemption which exist only by virtue of a treaty stipulation to this effect.

While extraterritoriality deals with the exemption of persons only, exterritoriality exempts persons and
things; extraterritoriality can exist only because of a treaty, while exterritoriality is generally. premised on
an international custom.
 SALONGA:

FORMAL OR EXTRINSIC VALIDITY

General Rule: indicated in the first paragraph of Art. 17 of the Civil Code, namely:

• “The forms and-solemnities of contracts, wills, and other public instruments shall be governed by the laws of the
country in which they are executed.”
• This is the theory of lex loci celebrationis

Is the application compulsory?

• Old rule: Yes

• New rule (Second Restatement): No, formalities of contract governed by law chosen by parties and place where
contract executed
• Philippine rule: Optional approach when re: formal validity of wills (Art 816, CC)
Compulsory approach when contracts (Insular Government vs Frank)

ESSENTIAL or INTRINSIC VALIDITY

refers to the nature, content, and effects of the contract.
governed by the proper law of the contract ⎯the law voluntarily agreed by the parties
Learned commentators have proposed three possible laws that could govern the questions relating to the intrinsic validity
of contracts:
(1) The law of the place of making;
(2) The law of place of performance; or
(3) The law intended by the parties
The rule as posited by Prof. Weintraub is actually expressed in Sections 187 and 188 of the Second Restatement of Conflict
of Laws which provide:

Section 187. Law of the State Chosen by the Parties

(1) The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular
issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.

(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular
issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue,
either:
 (a) The chosen state has no substantial relationship to the parties or the transaction and there is not other
reasonable basis for the parties’ choice, or
(b) Application of the law of the chosen state would be contrary to a fundamental policy of a state which has a
materially greater interest than the chosen state in the determination of the particular issue and which, under the
section 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

(3) In the absence of a contrary indication of intention, the reference is to the local law of state of the chosen law.

Section 188. Law Governing in Absence of Effective Choice by the Parties

(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state
which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles
stated in section

(2) In the absence of an effective choice of law by the parties, the contracts to be taken into account in applying the
principles of section 6 to determine the law applicable to an issue include:
(a) place of contracting
(b) place of negotiation of the contract
(c) the place of performance
(d) the location of the subject matter of the contract
(e) the domicile, residence, nationality, place of incorporation and place of business of the parties. These contacts
are to be evaluated according to their relative importance with respect to the particular issue.
(3) If the place of negotiating the contract and the place of performance are in the same state, the local law of the
state will usually be applied

Forms and Solemnities

The Philippines follows the lex loci contractus rule as embodied in Article 17 of the Civil Code which states to wit:
“The forms and solemnities of contracts, wills, and other public instruments shall be governed by the laws of the country
in which they are executed. When the acts referred to are executed before diplomatic or consular officials of the Republic
of the Philippines in a foreign country, the solemnities established by Philippine Laws shall be observed in their execution.”

Engel v. Velasco

Capacity to Enter into Contracts – National Law Article 15. (Salonga)

Status is a basic concern in Conflict of Laws involving contracts entered into involving minors and married women. There
are two views with respect to status:

1) First, is the nationality principle whereby the capacity of an individual to enter into a contract is referred to his National
Law and is regulated by Article 15 of the Civil Code which states to wit: “Laws relating to family rights and duties or to
status, condition and legal capacity of persons are binding upon citizens of the Philippines even though living abroad.”

XPN: in the case of alienation or encumbering of properties both real and personal

2) Second, is the domiciliary principle whereby a persons capacity to enter into a contract should be determined by the law
of his domicile.

The latter, which involves the lex loci contractus rule with reference to capacity to enter into a contract, has now been
abandoned. The rule followed nowadays is that the law that should govern a contract is the law of the state with which the
contract has its more significant relationship.

As to the capacity for a corporation to enter into a contract, it has long been established that a foreign corporation, though
considered as domiciled in the state where chartered, can nevertheless make a contract in another state.378 It has been
held however, that the law of the place of contracting, rather than that of the state of incorporation, determines whether
or not a corporation is precluded - when sued on the contract - from setting up the defenses of ultra vires.
V. LEX LOCI SOLUTIONIS

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
 Macmillan and Bloedel v. TH Valderama and Sons,

VI. MOST SIGNIFICANT RELATIONSHIP RULE (MSSR)

Under the state of the most significant relationship rule, to ascertain what state law to apply to a dispute, the court
should determine which state has the most substantial connection to the occurrence and the parties. In a case involving a
contract, the court should consider where the contract was made, was negotiated, was to be performed, and the domicile,
place of business, or place of incorporation of the parties. This rule takes into account several contacts and evaluates them
according to their relative importance with respect to the particular issue to be resolved.

Restatement of the Law, Second: S 188. Law Governing in Absence of Effective Choice by the Parties

Second Restatement of Conflict of Laws which provide:

Section 187. Law of the State Chosen by the Parties
(1) The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular
issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.
(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular
issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue,
either:
(a) The chosen state has no substantial relationship to the parties or the transaction and there is not other
reasonable basis for the parties’ choice, or
 (b) Application of the law of the chosen state would be contrary to a fundamental policy of a state which
has a materially greater interest than the chosen state in the determination of the particular issue and which, under
the section 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.
(3) In the absence of a contrary indication of intention, the reference is to the local law of state of the chosen law.

Section 188. Law Governing in Absence of Effective Choice by the Parties

(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state
which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles
stated in section 6.
(2) In the absence of an effective choice of law by the parties, the contracts to be taken into account in applying the
principles of section 6 to determine the law applicable to an issue include:
(a) place of contracting
(b) place of negotiation of the contract
(c) the place of performance
(d) the location of the subject matter of the contract
(e) the domicile, residence, nationality, place of incorporation and place of business of the parties.
These contacts are to be evaluated according to their relative importance with respect to the particular issue.
(3) If the place of negotiating the contract and the place of performance are in the same state, the local law of the state
will usually be applied, except as otherwise provided in sections 189-203.
As to the second part of the rule as mentioned by Prof. Weintraub, although inherently ambiguous it means that
the courts will consider the various contacts that states have with the transaction, and after weighing their relative
significance to the case at hand, not merely counting them, conclude that one state should govern the transaction because
its total relationship is the most important.384 If the contract is negotiated, completed, and performed all in one state, this
state ordinarily determines its validity. 385 If however, a contract is negotiated, completed and performed in different states
the court will then have to consider various factors such as the domicile of the contracting parties, place of business, place
of incorporation, place of performance, place of payment and others. In commercial undertakings, for example, which call
for repayment of money, the law applicable to most substantial issues will be that of the place of payment. However, in a
personal family transactions, such as a contract to will property, greater weight will attach to the domicile.

Pakistan Intl Airlines Corp v. Ople, 1990 (PAGE 90-95 PARAS)

Pakistan Intl Airlines Corp v. Ople

Pakistan International Airlines vs. Ople – the Supreme Court held that where the relationship between the parties is affected
with public interest and the multiple and substantive contacts of the contract are with Philippine law, Philippine courts and
agencies may not be ousted of their jurisdiction.

FACTS: On 2 December 1978, petitioner Pakistan International Airlines Corporation (PIA), a foreign corporation licensed
to do business in the Philippines, executed in Manila two (2) separate contracts of employment, one with private
respondent Ethelynne B. Farrales and the other with private respondent Ma. M.C. Mamasig. The contracts became
effective on 9 January 1979 and provided for the duration of employment and penalty, termination and the applicable law
which is of Pakistan’s. They were trained in Pakistan and worked as flight attendants with base station in Manila and
flying assignments to different parts of the Middle East and Europe.
A year and four (4) months prior to the expiration of the contracts of employment, they received separate letters
informing them that their services would be terminated.

Private respondents Farrales and Mamasig jointly instituted a complaint for illegal dismissal and non-payment of company
benefits and bonuses, against PIA with the then Ministry of Labor and Employment. Several attempts at conciliation were
not fruitful.

ISSUES: 1. Whether the principle of party autonomy in contracts is absolute.

2. Whether Pakistan law is applicable law.

HELD: Both NO. The terms and conditions of the contract are subject to public policy considerations. Pakistani
law cannot be applied as it violates the labor laws of the PH.

The principle of party autonomy in contracts is not an absolute principle. The rule in Article 1306 of the Civil Code
is that the contracting parties may establish such stipulations as they may deem convenient, “provided they are not
contrary to law, morals, good customs, public order or public policy.” Thus, counter-balancing the principle of autonomy
of contracting parties is the equally general rule that provisions of applicable law, especially provisions relating to matters
affected with public policy, are deemed written into the contract. The law relating to labor and employment are impressed
with public interest. Paragraph 5 of that employment contract was inconsistent with Articles 280 and 281 of the Labor
Code and thus, cannot be given effect.

A contract freely entered into should, of course, be respected, as PIA argues, since a contract is the law between
the parties. The principle of party autonomy in contracts is not, however, an absolute principle. The rule in Article 1306, of
our Civil Code is that the contracting parties may establish such stipulations as they may deem convenient, “provided they
are not contrary to law, morals, good customs, public order or public policy.” Thus, counter-balancing the principle of
autonomy of contracting parties is the equally general rule that provisions of applicable law, especially provisions relating
to matters affected with public policy, are deemed written into the contract. Put a little differently, the governing principle
is that parties may not contract away applicable provisions of law especially peremptory provisions dealing with matters
heavily impressed with public interest. The law relating to labor and employment is clearly such an area and parties are not
at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting
with each other. It is thus necessary to appraise the contractual provisions invoked by petitioner PIA in terms of their
consistency with applicable Philippine law and regulations.

Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which specifies, firstly, the law of
Pakistan as the applicable law of the agreement and, secondly, lays the venue for settlement of any dispute arising out of
or in connection with the agreement “only [in] courts of Karachi Pakistan”. The first clause of paragraph 10 cannot be
invoked to prevent the application of Philippine labor laws and regulations to the subject matter of this case, i.e., the
employer-employee relationship between petitioner PIA and private respondents. We have already pointed out that the
relationship is much affected with public interest and that the otherwise applicable Philippine laws and regulations cannot
be rendered illusory by the parties agreeing upon some other law to govern their relationship. Neither may petitioner invoke
the second clause of paragraph 10, specifying the Karachi courts as the sole venue for the settlement of dispute; between
the contracting parties. Even a cursory scrutiny of the relevant circumstances of this case will show the multiple and
substantive contacts between Philippine law and Philippine courts, on the one hand, and the relationship between the
parties, upon the other: the contract was not only executed in the Philippines, it was also performed here, at least partially;
private respondents are Philippine citizens and respondents, while petitioner, although a foreign corporation, is licensed to
do business (and actually doing business) and hence resident in the Philippines; lastly, private respondents were based in
the Philippines in between their assigned flights to the Middle East and Europe. All the above contacts point to the Philippine
courts and administrative agencies as a proper forum for the resolution of contractual disputes between the parties. Under
these circumstances, paragraph 10 of the employment agreement cannot be given effect so as to oust Philippine agencies
and courts of the jurisdiction vested upon them by Philippine law. Finally, and in any event, the petitioner PIA did not
undertake to plead and prove the contents of Pakistan law on the matter; it must therefore be presumed that the applicable
provisions of the law of Pakistan are the same as the applicable provisions of Philippine law.

VII. TRANSPORTATION

a. Civil Code: Common Carriers

Articles 1753, 1736, 1737, 1738, 1766

Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the
provisions of article 1738.

Article 1737. The common carrier’s duty to observe extraordinary diligence over the goods remains in full force and effect
even when they are temporarily unloaded or stored in transit, unless the shipper or owner has made use of the right of
stoppage in transitu.

Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods
are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of
the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them.

Article 1753. The law of the country to which the goods are to be transported shall govern the liability of the common
carrier for their loss, destruction or deterioration.

Article 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed
by the Code of Commerce and by special laws.

b. Carriage of Goods by Sea Act

COGSA lays down the rights and responsibilities between shippers and the shipwoners as regards
"INTERNATIONAL” carriage of “GOODS BY SEA” where the Philippines is the destination.

The following are important features of the Carriage of Goods by Sea Act:

1.) It acts as a supplement to the Civil Code and applies to all contracts of carriage of goods coming to or from Philippine
ports in foreign trade.

2.) When there is damage to the goods, notice must be given by the recipient to the carrier or his agent upon receipt of
the goods. But if the damage is apparent/externally visible, notice must be given within 3 days from receipt of the goods.

3.) Failure of the recipient to notify the carrier will not prevent the filing of a suit for the loss/damage of the goods.

4.) The maximum liability is US$500.00 per package/customary freight unit unless the shipper or owner of the goods
declares a higher value. It may be lowered by agreement put down in the bill of lading.

The purpose of limiting the common carrier's liability is to protect it from fraud, such as by allowing it to take
insurance to protect itself. If, for example, the shipper or consignee/recipient understated the value of the goods, it not
only violates a valid contractual stipulation; it has also committed fraud against the common carrier by trying to make it
liable for an amount greater that what was stipulated in the bill of lading (Cokaliong Shipping Lines vs. UCPB General
Insurance Co., GR 146018, June 25, 2003.)

American President Lines, Inc v. Klepper

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 American President Lines, Ltd. to the pier, plus the sum of P2,000.00 as sentimental value
of the damaged goods and attorney’s fees.

On 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.
 Trial court rendered decision ordering the shipping company to pay plaintiff the sum of P6,729.50, value of the
goods damaged, plus P500.00 as their sentimental value, with legal interest from the filing of the complaint, and the sum
of P1,000.00 as attorney’s fees. 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.

ISSUE: WON the petitioner’s liability as a common carrier is the amount of damage or only $500 under COGSA.

HELD: The pertinent provision of the bill of lading alluded to is clause 17 which in part provides:

"17. In case of any loss or damage to or in connection with goods exceeding in actual value $500 lawful money of the
United States, per package, . . the value of the goods shall be deemed to be $500 per package . . . on which basis the
freight is adjusted and the Carrier’s liability, if any, shall be determined on the basis of a value of $500 per package . . . or
pro rata in case of partial loss or damage, unless the nature of the goods and a valuation higher than $500 shall have been
declared in writing by the shipper upon delivery to the Carrier and inserted in this bill of lading and extra freight paid if
required and in such case if the actual value of the goods per package . . . shall exceed such declared value, the value shall
nevertheless be deemed to be the declared value and the Carrier’s liability, if any, shall not exceed the declared value and
any partial loss or damage shall be adjusted pro rata on the basis of such declared value."

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.

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." This clause is very revealing. 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.
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. This is more so where respondent is both the shipper and the consignee of the goods in question. These
circumstances take this case out of our ruling in the Mirasol case (invoked by the Court of Appeals) and places it within our
doctrine in the case of Mendoza v. Philippines Air Lines, Inc., (90 Phil., 836), where we said:

". . . Later, as already said, he says that he was never a party to the contract of transportation and was a complete stranger
to it, and that he is now suing on a tort or a violation of his rights as a stranger (culpa aquiliana). If he does not invoke the
contract of carriage entered into with the defendant company, then he would hardly have any leg to stand on. His right to
prompt delivery of the can of film at the Pili Air Port stems and is derived from the contract of carriage under which contract,
the PAL undertook to carry the can of film safely and to deliver it to him promptly. Take away or ignore that contract and
the obligation to carry and to deliver the right to prompt delivery disappear. Common carriers are not obligated by law to
carry and to deliver merchandise, and persons are not vested with the right to prompt delivery, unless such common carriers
previously assume the obligation. Said rights and obligations are created by a specific contract entered into by the parties.

xxx

"Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the stipulations of delivery
to Mendoza as consignee. His demand for the delivery of the can of film to him at the Pili Air Port may be regarded as a
notice of his acceptance of the stipulation of the delivery in his favor contained in the contract of carriage, such demand
being one for the fulfillment of the contract of carriage and delivery. In this case he also made himself a party to the
contract, or at least has come to court to enforce it. His cause of action must necessarily be founded on its breach."
 With regard to the contention that the Carriage of Goods by Sea Act should also control this case, the same is of
no moment. Article 1753 provides that the law of the country to which the goods are to be transported shall govern the
liability of the common carrier in case of loss, destruction or deterioration. This means the law of the Philippines, or our
new Civil Code. Under Article 1766, "In all matters not regulated by this Code, the rights and obligations of common carriers
shall be governed by the Code of Commerce and by special laws," and here we have provisions that govern said rights and
obligations (Articles 1736, 1737, and 1738). Therefore, although Section 4(5) of the Carriage of Goods by Sea Act states
that the carrier shall not be liable in an amount exceeding $500.00 per package unless the value of the goods had been
declared by the shipper and inserted in the bill of lading, said section is merely suppletory to the provisions of the Civil
Code. In this respect, we agree to the opinion of the Court of Appeals.

Wherefore, with the modification that petitioner shipping company should only pay to respondent the sum of
$500.00 as value of the goods damaged, the decision appealed from should be affirmed in all other respects, without
pronouncement as to costs.

c. Warsaw Convention: Convention for the Unification of Certain Rules Relating to International
Transportation by Air

The Warsaw Convention, formally called “The Convention for the Unification of Certain Rules Relating to
International Transportation by Air”, to which the Republic of the Philippines is a party has the force and effect of law in
this country. It applies to all international transportation of passengers, baggage or goods performed by an aircraft
gratuitously or for hire. The purpose of the Warsaw Convention is that it was designed to protect and promote the
international airline industry that was, at the time of the drafting of the treaty, still in its infancy.

The Warsaw Convention was designed to protect the then infant air industry and to alleviate the complexity of
potential litigation in various States with conflicting choice-of law rules differing limits on damages that may be recovered.
The Convention limits the available places of instituting suits and applies to all international carriage of persons, baggage,
or goods performed by aircraft for hire, as that term is defined. It does not, however, apply to carriage of mail and postal
packages.402

In order for the Warsaw Convention to apply, the passenger must be informed of this fact. Article III requires
airlines to deliver to the passenger a ticket containing a "statement that the transportation is subject to the rules relating
to liability established by this convention". Further, the ticket must be delivered in time to allow the passenger to take out
insurance if he so desires.

The Convention does not cover all possible questions or definitions. Among those not expressly defined are the
definition of injury as including or excluding mental anguish caused by hijacking or flight delay, the definition of embarkation
or disembarkation as extending to waiting room areas, the definition of willful misconduct which removes the limitation on
damages, the contributory negligence defense, and the tolling of statutes of limitations. On these and other questions, the
lex fori403 may provide the answer, which may lead to the applicability of a number of divergent laws.

Where the passengers are residents and nationals of the forum and the ticket is issued in such State by the
defendant airline, the court may justifiably apply the law of the forum in a suit covered by the provisions of the Warsaw
Convention.

In cases where the Convention does not apply, the validity of the contract of carriage as well as the rights created
thereby are determined, in the absence of an effective choice of law by the parties, by the local law of the State from which
the passenger departs or the goods are dispatched, unless with respect to the particular issue, some other State has a
more significant relationship to the contract and to the parties.

In the absence of an effective choice of law, the courts have usually applied the local law of the State of departure,
sometimes on the stated ground that is was the place of making or the center of gravity of the contract. The forum has a
sound legitimate basis for the application of the policy found on its own internal law “when it is the center of gravity of the
contract and has the most significant relationship to the parties and the contract.”

Article 1, (Secs. 1 to 3)
Article 1

1. This Convention applies to all international carriage of persons, luggage or goods performed by aircraft for reward. It
applies equally to gratuitous carriage by aircraft performed by an air transport undertaking.

2. For the purposes of this Convention the expression "international carriage" means any carriage in which, according to
the contract made by the parties, the place of departure and the place of destination, whether or not there be a break in
the carriage or a transhipment, are situated either within the territories of two High Contracting Parties, or within the
territory of a single High Contracting Party, if there is an agreed stopping place within a territory subject to the sovereignty,
suzerainty, mandate or authority of another Power, even though that Power is not a party to this Convention. A carriage
without such an agreed stopping place between territories subject to the sovereignty, suzerainty, mandate or authority of
the same High Contracting Party is not deemed to be international for the purposes of this Convention.

3. A carriage to be performed by several successive air carriers is deemed, for the purposes of this Convention, to be one
undivided carriage, if it has been regarded by the parties as a single operation, whether it had been agreed upon under the
form of a single contract or of a series of contracts, and it does not lose its international character merely because one
contract or a series of contracts is to be performed entirely within a territory subject to the sovereignty, suzerainty, mandate
or authority of the same High Contracting Party.

Art. 28 (Secs 1 and 2) Chapter III, Liability of the Carrier.

Article 28

1. An action for damages must be brought, at the option of the plaintiff, in the territory of one of the High Contracting
Parties, either before the Court having jurisdiction where the carrier is ordinarily resident, or has his principal place of
business, or has an establishment by which the contract has been made or before the Court having jurisdiction at the place
of destination.

2. Questions of procedure shall be governed by the law of the Court seised of the case.

Lopez v. Pan Am

FACTS:

Reservations for first class accommodations in Flight No. 2 of Pan American World Airways hereinafter otherwise
called PAN AM from Tokyo to San Francisco on May 24, 1960 were made with PAN AM on March 29, 1960, by "Your Travel
Guide" agency, specifically, by Delfin Faustino, for then Senator Fernando Lopez, his wife Maria J. Lopez, his son-in-law
Alfredo Montelibano, Jr., and his daughter Mrs. Alfredo Montelibano, Jr. (Milagros Lopez Montelibano). PAN AM's San
Francisco head office confirmed the reservations on March 31, 1960.

First class tickets for the abovementioned flight were subsequently issued by PAN AM on May 21 and 23, 1960, in favor of
Senator Lopez and his party. The total fare of P9,444 for all of them was fully paid before the tickets were issued.

As scheduled Senator Lopez and party left Manila by Northwest Airlines on May 24, 1960, arriving in Tokyo at 5:30
P.M. of that day. As soon as they arrived Senator Lopez requested Minister Busuego of the Philippine Embassy to contact
PAN AM's Tokyo office regarding their first class accommodations for that evening's flight. For the given reason that the
first class seats therein were all booked up, however, PAN AM's Tokyo office informed Minister Busuego that PAN AM could
not accommodate Senator Lopez and party in that trip as first class passengers. Senator Lopez thereupon gave their first
class tickets to Minister Busuego for him to show the same to PAN AM's Tokyo office, but the latter firmly reiterated that
there was no accommodation for them in the first class, stating that they could not go in that flight unless they took the
tourist class therein.

Due to pressing engagements awaiting Senator Lopez and his wife in the United States he had to attend a business
conference in San Francisco the next day and she had to undergo a medical check-up in Mayo Clinic, Rochester, Minnesota,
on May 28, 1960 and needed three days rest before that in San Francisco Senator Lopez and party were constrained to
take PAN AM's flight from Tokyo to San Francisco as tourist passengers. Senator Lopez however made it clear, as indicated
in his letter to PAN AM's Tokyo office on that date (Exh. A), that they did so "under protest" and without prejudice to further
action against the airline. Suit for damages was thereafter filed by Senator Lopez and party against PAN AM.

ISSUE: 1. Whether or not the defendant Pan Am acted in bad faith for deliberate refusal to comply with its contract to
provide first-class accommodation to the plaintiff

2. Whether or not moral and exemplary damages should be awarded.

HELD:

1. YES, defendant Pan Am acted in bad faith. From the evidence of defendant it is in effect admitted that defendant through
its agents first cancelled plaintiffs' reservations by mistake and thereafter deliberately and intentionally withheld from
plaintiffs or their travel agent the fact of said cancellation, letting them go on believing that their first class reservations
stood valid and confirmed. In so misleading plaintiffs into purchasing first class tickets in the conviction that they had
confirmed reservations for the same, when in fact they had none, defendant wilfully and knowingly placed itself into the
position of having to breach its aforesaid contracts with plaintiffs should there be no last-minute cancellation by other
passengers before flight time, as it turned out in this case. Such actuation of defendant may indeed have been prompted
by nothing more than the promotion of its self-interest in holding on to Senator Lopez and party as passengers in its flight
and foreclosing on their chances to seek the services of other airlines that may have been able to afford them first class
accommodations. All the time, in legal contemplation such conduct already amounts to action in bad faith. For bad faith
means a breach of a known duty through some motive of interest or ill will (Spiegel v. Beacon Participations 8 NE 2d 895,
907). As stated in Kamm v. Flink, 113 N.J.L. 582, 175 A. 62, 99 A.L.R. 1, 7: "Self-enrichment or fraternal interest, and not
personal ill will, may well have been the motive; but it is malice nevertheless."

At the time plaintiffs bought their tickets, defendant, therefore, in breach of its known duty, made plaintiffs believe
that their reservations had not been cancelled. An additional indication of this is the fact that upon the face of the two
tickets of record, namely, the ticket issued to Alfredo Montelibano, Jr. on May 21, 1960 (Exh. 22) and that issued to Mrs.
Alfredo Montelibano, Jr., on May 23, 1960 (Exh. 23), the reservation status is stated as "OK". Such wilfull non-disclosure of
the cancellation or pretense that the reservations for plaintiffs stood and not simply the erroneous cancellation itself is the
factor to which is attributable the breach of the resulting contracts. And, as above-stated, in this respect defendant clearly
acted in bad faith.

2. YES, moral and exemplary damages may be awarded. First, then, as to moral damages. As a proximate result of
defendant's breach in bad faith of its contracts with plaintiffs, the latter suffered social humiliation, wounded feelings,
serious anxiety and mental anguish. For plaintiffs were travelling with first class tickets issued by defendant and yet they
were given only the tourist class. At stop-overs, they were expected to be among the first-class passengers by those
awaiting to welcome them, only to be found among the tourist passengers. It may not be humiliating to travel as tourist
passengers; it is humiliating to be compelled to travel as such, contrary to what is rightfully to be expected from the
contractual undertaking.

It is not hard to see that in her condition then a physical discomfort sustained for thirteen hours may well be
considered a physical suffering. And even without regard to the noise and trepidation inside the plane which defendant
contends, upon the strength of expert testimony, to be practically the same in first class and tourist class the fact that the
seating spaces in the tourist class are quite narrower than in first class, there being six seats to a row in the former as
against four to a row in the latter, and that in tourist class there is very little space for reclining in view of the closer distance
between rows (Tsn., p. 24, Nov. 25, 1960), will suffice to show that the aforesaid passenger indeed experienced physical
suffering during the trip. Added to this, of course, was the painful thought that she was deprived by defendant after having
paid for and expected the same of the most suitable place for her, the first class,where evidently the best of everything
would have been given her, the best seat, service, food and treatment. Such difference in comfort between first class and
tourist class is too obvious to be recounted, is in fact the reason for the former's existence, and is recognized by the airline
in charging a higher fare for it and by the passengers in paying said higher rate. Accordingly, considering the totality of her
suffering and humiliation, an award to Mrs. Maria J. Lopez of P50,000.00 for moral damages will be reasonable.

The rationale behind exemplary or corrective damages is, as the name implies, to provide an example or correction
for public good. Defendant having breached its contracts in bad faith, the court, as stated earlier, may award exemplary
damages in addition to moral damages. In view of its nature, it should be imposed in such an amount as to sufficiently and
effectively deter similar breach of contracts in the future by defendant or other airlines. In this light, we find it just to award
P75,000.00 as exemplary or corrective damages.

KLM Roral Dutch Airlines v. CA, 1875:

FACTS: Sometime in March 1965 the respondents 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

ISSUE: 1. Whether or not the Warsaw Convention applies.

2. Whether or not KLM should be held liable.

HELD:

1. NO, 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. YES, the argument that the KLM should not be liable for the tortious conduct of Aer Lingus 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. As the airline which issued those tickets
with the knowledge that the respondents would be flown on the various legs of their journey by different air carriers, the
KLM was chargeable with the duty and responsibility of specifically informing the respondents of conditions prescribed in
their tickets or, in the very least, to ascertain that the respondents read them before they accepted their passage tickets.
A thorough search of the record, however, inexplicably fails to show that any effort was exerted by the KLM officials or
employees to discharge in a proper manner this responsibility to the respondents. Consequently, we hold that the
respondents cannot be bound by the provision in question by which KLM unilaterally assumed the role of a mere ticket-
issuing agent for other airlines and limited its liability only to untoward occurrences on its own lines.

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. The respondents, under that assurance of
the internationally prestigious KLM, naturally had the right to expect that their tickets would be honored by Aer Lingus to
which, in the legal sense, the KLM had indorsed and in effect guaranteed the performance of its principal engagement to
carry out the respondents' scheduled itinerary previously and mutually agreed upon between the parties. 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.

Santos v. Northwest Orient Airlines

In Santos III v. Northwest Orient Airlines, the Supreme Court ruled in favor of the constitutionality of the Warsaw
Convention, explaining that the treaty was a joint legislative-executive act. The presumption is that it was first carefully
studied and determined to be constitutional before it was adopted and given the force of law in this country.

FACTS: The petitioner is a minor and a resident of the Philippines. Private respondent Northwest Orient Airlines (NOA) is
a foreign corporation with principal office in Minnesota, U.S.A. and licensed to do business and maintain a branch office in
the Philippines.

On October 21, 1986, the petitioner purchased from NOA a round-trip ticket in San Francisco. U.S.A., for his flight
from San Francisco to Manila via Tokyo and back. The scheduled departure date from Tokyo was December 20, 1986. No
date was specified for his return to San Francisco.

On December 19, 1986, the petitioner checked in at the NOA counter in the San Francisco airport for his scheduled
departure to Manila. Despite a previous confirmation and re-confirmation, he was informed that he had no reservation for
his flight from Tokyo to Manila. He therefore had to be wait-listed.

On March 12, 1987, the petitioner sued NOA for damages in the RTC of Makati. On April 13, 1987, NOA moved to
dismiss the complaint on the ground of lack of jurisdiction, citing Article 28(1) of the Warsaw Convention, reading as follows:
 Art. 28. (1) An action for damage must be brought at the option of the plaintiff, in the territory of one of the High
Contracting Parties, either before the court of the domicile of the carrier or of his principal place of business, or where he
has a place of business through which the contract has been made, or before the court at the place of destination.

The private respondent contended that the Philippines was not its domicile nor was this its principal place of
business. Neither was the petitioner’s ticket issued in this country nor was his destination Manila but San Francisco in the
United States. Lower court granted the dismissal, CA affirmed. Hence, this appeal, which raises several questions, including
the proper interpretation of Article 28(1) of the Warsaw Convention.

ISSUE: WON the Philippines has jurisdiction over the case. (Issue raised by the party is WON the provision of the Warsaw
convention was constitutional)

HELD: No jurisdiction (the provision is constitutional)

The Supreme Court, through Mr. Justice Cruz, held, among other things, that Article 28(1) is a jurisdiction and not
a venue provision. Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by consent or
waiver upon a court which otherwise would have no jurisdiction over the subject matter of an action; but the venue of an
action as fixed by statute may be changed by consent of the parties. The place of destination, within the meaning of the
Warsaw Convention, is determined by the terms of the contract of carriage, or, specifically in this case, the ticket between
the passenger and the carrier. Examination of the petitioner’s ticket shows that his ultimate destination is San Francisco.
Although the date of the return flight was left open, the contract of carriage between the parties indicates that NOA was
bound to transport the petitioner to San Francisco from Manila. Manila should therefore be considered merely an agreed
stopping place and not the destination.

The Convention is a treaty commitment voluntarily assumed by the Philippine government and, as such, has the
force and effect of law in this country. The petitioner’s allegations are not convincing enough to overcome this presumption.
Apparently, the Convention considered the four places designated in Article 28 the most convenient forums for the litigation
of any claim that may arise between the airline and its passenger, as distinguished from all other places.

NOTES:

WON Warsaw convention applies.

Convention applies to all international transportation of persons performed by aircraft for hire. Whether the transportation
is “international” is determined by the contract of the parties, which in the case of passengers is the ticket. When the
contract of carriage provides for the transportation of the passenger between certain designated terminals “within the
territories of two High Contracting Parties,” the provisions of the Convention automatically apply and exclusively govern the
rights and liabilities of the airline and its passenger.

WON MNL or SFO was the destination.

The place of destination, within the meaning of the Warsaw Convention, is determined by the terms of the contract of
carriage or, specifically in this case, the ticket between the passenger and the carrier. Examination of the petitioner’s ticket
shows that his ultimate destination is San Francisco. Although the date of the return flight was left open, the contract of
carriage between the parties indicates that NOA was bound to transport the petitioner to San Francisco from Manila. Manila
should therefore be considered merely an agreed stopping place and not the destination.

WON Northwest has domicile in the Philippines

Notably, the domicile of the carrier is only one of the places where the complaint is allowed to be filed under Article 28(1).
By specifying the three other places, to wit, the principal place of business of the carrier, its place of business where the
contract was made, and the place of destination, the article clearly meant that these three other places were not
comprehended in the term “domicile.”
 American Airlines v. CA

FACTS: Private Respondent purchased from Singapore Airlines in Manila conjunction tickets for Manila-Singapore-Athens-
Larnaca-Rome-Turin-Zurich-Geneva-Copenhagen-New York. In Geneva, private respondent decided to go straight to New
York and in the absence of a direct flight in his conjunction ticket for a one-way from Geneva-New York from the petitioner
airline. Petitioner issued its own ticket to the private respondent in Geneva and claimed the value of the unused portion of
the conjunction ticket from the IATA 2 clearing house in Geneva. In 1989, petitioner filed an action for damages before the
RTC of Cebu for the alleged mental anguish and embarrassment he suffered from at the Geneva airport when petitioner’s
security officers prevented him from boarding the plane, detained him for about an hour and allowed him to board the
place only after all the other passengers have boarded.

ISSUE: Does RTC of Cebu have jurisdiction to take cognizance of the action for damages filed by private respondent against
petitioner in view of Art 28 (1) of the Warsaw Convention.

HELD: Yes. The Warsaw Convention to which the Philippines is a party and which has the force and effect of the law in
this country applies to all international transportation of persons, baggage or goods performed by an airline gratuitously or
for hire. Article 28(1) of the Warsaw Convention provides: An action for damages must be brought at the option of the
plaintiff, in the territory of one of the High Contracting Parties, either before the court of the domicile of the carrier of his
principal place of business or where he has a place of business through which the contract has been made, or before the
court at the place of destination.

The contract of carriage between the private respondent and Singapore Airlines although performed by different
carriers under a series of airline tickets, including that issued by petitioner, constitutes a single operation. Members of the
IATA are under a general pool partnership agreement wherein they act as agent of each other in the issuance of tickets to
contracted passengers to boost ticket sales worldwide at the same time provides passengers easy access to airlines which
are otherwise inaccessible in some parts of the world. Thus, when the petitioner accepted the unused portion of the
conjunction tickets, entered it in the IATA clearing house and undertook to transport the private respondent over the route
covered by the unused portion of the conjunction tickets, it tacitly recognized its commitment under the IATA pool
arrangement to act as agent of the principal contracting airlines, Singapore Airlines, as to the segment of the trip the
petitioner agreed to undertake. As thus, the petitioner thereby assumed the obligation to take the place of the carrier
originally designated in the original conjunction ticket.

The third option of the plaintiff under Art 28 (1) of the Warsaw Convention e.g., to sue in the place of business of
the carrier where the contract was made , is Manila, and Philippine courts are clothed with jurisdiction to try this case. While
the case is filed in Cebu and not in Manila the issue of venue is no longer an issue as the petitioner is deemed to have
waived it when it presented evidence before the trial court.

Limit of Liability under Warsaw does not apply:

Article 25, as amended, provides that the limits of liability specified in Article 22 will not apply if it is proved that
the damage resulted from an act or omission of the carrier, his servants or agents, done with intent to case damage or
recklessly and with knowledge that damage would probably result, provided that in such a case, it is proved that the servant
or agent was acting within the scope of his authority.

Article 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 wilful misconduct or by such default on his part as, in accordance with the law of
the Court seised of the case, is considered to be equivalent to wilful misconduct.

2. Similarly the carrier shall not be entitled to avail himself of the said provisions, if the damage is caused as
aforesaid by any agent of the carrier acting within the scope of his employment.

Sabena Belgian World Airlines v. CA

FACTS:

Concepcion F. Fule purchased 3 round trip tickets for herself and two children, Estrella and Gemma, from Sabena
Belgian World Airlines for the Manila-Brussels-Barcelona-Madrid flight.

Just before the plane arrived in Brussels, it was announced that the city would be cloudy and rainy. With a slight
drizzle, the Fule Family put on their sweaters without covering their heads before disembarking, Contrary to Mrs. Fule’s
expectation that there would be someone with umbrella tasked to bring them to the terminal building, no one assisted
them. As a result, they got wet. They then waited for about 5 hours in the airport terminal for their connecting flight to
Barcelona. When their flight was announced, they had to walk again in the rain without head covers. In Barcelona, Mrs.
Fule's luggage went missing. After 40 minutes of waiting, a Sabena personnel advised her to wait for the next flight from
Brussels because her luggage might be in it. However, not among the baggages carried were hers. She was then asked to
prepare a reclaimation letter. Because of the foregoing, Mrs. Fule purchased a dress and a nightgown, made an overseas
call in Manila to find out whether her luggage was not left there, incurred round trip taxi fare to retrieve her lost baggage
and paid for the services of a doctor as well as for the cost of medicines used because they felt sick.

Upon reaching Madrid, Mrs. Fule made a letter-complaint to Sabena in its Madrid office. Said letter was given to
Angel Yancha who informed her that the Madrid office would pay only the half of what she was asking. The balance would
be paid in Manila. Accepting the arrangement, Mrs. Fule received a check and signed a document written in French, a
language she did not understand. Yancha did not explain the contents of the document and it was only upon her return to
Manila that she learned that the document was a quitclaim. She then made a demand to Sabena in its Manila office.

On the basis of these facts, the lower court found Sabena Belgian World Airlines liable. The latter, however, insists
that the quitclaim is binding. Mrs. Yule understood French because she received her schooling in Spain where French is
taught. Moreover, moral and exemplary damages should notbe awarded because of the express declaration of the lower
court that it did not act in bad faith.

ISSUE:

Whether or not the Fule Family can claim damages against Sabena Belgian World Airlines for the latter’s breach of
contract of carriage.

RULING:

YES. The examination of the provisions of the document in question revealed that while it may have been a quitclaim
since it settles upon receipt of the mentioned sum of money all claims whether legally founded or not, Mrs. Fule did not
know that she was made to sign a quitclaim. This was considered by the Court as a misconduct on the part of the carrier's
employees toward a passenger giving the latter an action for damages against the carrier.

As to the petitioner’s claim regarding the award of moral and exemplary damages, the Court ruled that the allegation
is misleading because the lower court did not declare the petitioner entirely faultless. It is settled that with respect to moral
damages, the rule is that the same are recoverable in a damage suit predicated upon a breach of contract of carriage only
where (1) the mishap results in the death a of passenger and (2) it is proved that the carrier was guilty of fraud and bad
faith, even if death does not result. In the case at bar, the petitioner is guilty of bad faith in letting Mrs. Fule sign a quitclaim
without her knowledge or understanding and contrary to what she was planning to do.

Northwest Airlines , Inc v. CA

Facts: The plaintiff, [Torres], allegedly on a special mission to purchase firearms for the Philippine Senate, purchased a
round trip ticket from defendant [Northwest] for his travel to Chicago and back to Manila. Via defendants flight, plaintiff left
for United States.

After purchasing firearms and on the way back to Manila, plaintiff checked-in and presented before defendants
representative his two identical baggage, one of which contained firearms. Defendants representative required the baggage
to be opened and the supporting evidence to be presented. Plaintiff showed them his authorization from the Philippine
government and the purchase receipts. Plaintiff thereafter sealed the baggage and defendants representative placed a red
tag on the baggage with firearms with the marking "CONTAINS FIREARMS".

Upon arrival in Manila on June 22, 1988 plaintiff was not able to claim one of his baggages. Plaintiff was informed
by defendants representative that his baggage containing firearms was recalled back to Chicago by defendant for US
Customs verification. A telex to this effect was shown to plaintiff.

On June 28, 1988, after being advised of the arrival of his other baggage, plaintiff claimed and opened the baggage
in the presence of defendants representative and found out that the firearms were missing. A Personal Property Missing
Damage Report was issued by defendant to plaintiff

On account of the continuous refusal of defendant to settle amicably, plaintiff then prayed before the trial court
that defendant be ordered to pay actual damages, moral damages, temperate damages, exemplary damages and attorney's
fees (pp. 1-6, Complaint; p. 1, Record).

The trial court rendered on 13 September 1989 a full-blown decision5 ordering NORTHWEST to pay TORRES. Both
TORRES and NORTHWEST appealed. The Court of Appeals sustained the trial courts judgment.

ISSUE: Whether or not the liability of Northwest for actual damages may not be limited to that prescribed in Section 22(2)
of the Warsaw Convention.

HELD: YES, both the trial court and the Court of Appeals agreed that NORTHWESTs liability for actual damages may not
be limited to that prescribed in Section 22(2) of the Warsaw Convention. In Alitalia v. Intermediate Appellate Court,we held:

The [Warsaw] Convention does not operate as an exclusive enumeration of the instances of an airlines liability, or
as an absolute limit of the extent of that liability. Such a proposition is not borne out by the language of the Convention,
as this Court has now, and at an earlier time, pointed out. Moreover, slight reflection readily leads to the conclusion that it
should be deemed a limit of liability only in those cases where the cause of the death or injury to person, or destruction,
loss or damage to property or delay in its transport is not attributable to or attended by any willful misconduct, bad faith,
recklessness, or otherwise improper conduct on the part of any official or employee for which the carrier is responsible, and
there is otherwise no special or extraordinary form of resulting injury. The Conventions provisions, in short, do not regulate
or exclude liability for other breaches of contract by the carrier or misconduct of its officers and employees, or for some
particular or exceptional type of damage.

VIII. Other Contracts -

Simple loan granted by financial institutions v. loan granted by private individual

Cases:
K.K. Shell Sekiyu Osaka Hatsubaisho and Fu Hing Oil Co., LTD., vs. Court of Appeals

Facts: Kumagai a corporation formed and existing under the laws of Japan, filed a complaint for the collection of a sum of
money with preliminary attachment against Atlantic, a corporation registered in Panama, the vessel MV Estella and
Crestamonte Shipping Corporation, a Philippine corporation.
Atlantic is the owner of the MV Estella. The complaint alleged that Crestamonte, as bareboat charterer and operator of the
MV Estella, appointed N.S. Shipping Corporation (NSS), a Japanese corporation, as its general agent in Japan. The
appointment was formalized in an Agency Agreement. NSS in turn appointed Kumagai as its local agent in Osaka, Japan.
Kumagai supplied the MV Estella with supplies and services but despite repeated demands Crestamonte failed to pay the
amounts due.

NSS and Keihin Narasaki Corporation filed complaints-in-intervention.

Petitioner Fu Hing Oil Co., Ltd, a corporation organized in Hong Kong and not doing business in the Philippines,
filed a motion for leave to intervene with an attached complaint-in-intervention, alleging that Fu Hing supplied marine diesel
oil/fuel to the MV Estella and incurred barge expenses for the total sum of US$152,412.56 but such has remained unpaid
despite demand and that the claim constitutes a maritime lien. The issuance of a writ of attachment was also prayed for.

Petitioner K.K. Shell Sekiyu Osaka Hatsubaisho, a corporation organized in Japan and not doing business in the
Philippines, likewise filed a motion to intervene with an attached complaint-in-intervention, alleging that upon request of
NSS, Crestamonte's general agent in Japan, K.K. Shell provided and supplied marine diesel oil/fuel to the W Estella and that
despite previous demands Crestamonte has failed to pay the amounts of US$16,996.96 and One Y1,000,000.00 and that
K.K. Shell's claim constitutes a maritime lien on the MV Estella. The complaint-in-intervention sought the issuance of a writ
of preliminary attachment.

Issue: Whether the court has acquired jurisdiction

Ruling:

Private respondents have anticipated the possibility that the courts will not find that K.K. Shell is expressly bound by the
Agency Agreement, and thus they fall back on the argument that even if this were so, the doctrine of forum non conveniens
would be a valid ground to cause the dismissal of K.K. Shell's complaint-in-intervention.

K.K. Shell counters this argument by invoking its right as maritime lienholder. It cites Presidential Decree No. 1521, the
Ship Mortgage Decree of 1978, which provides:

SEC. 21. Maritime Lien for Necessaries; person entitled to such lien-Any person furnishing repairs, supplies, to
wage, use of dry dock or marine railway, or other necessaries, to any vessel, whether foreign or domestic, upon
the order of the owner of such vessel, or of a person authorized by the owner, shall have a maritime lien on the
vessel, which may be enforced by suit in rem, and it shall be necessary to allege or prove that credit was given to
the vessel.

Private respondents on the other hand argue that even if P.D. No. 1521 is applicable, K.K. Shell cannot rely on the maritime
lien because the fuel was provided not exclusively for the benefit of the MV Estella, but for the benefit of Crestamonte in
general. Under the law it must be established that the credit was extended to the vessel itself. Now, this is a defense that
calls precisely for a factual determination by the trial court of who benefitted from the delivery of the fuel. Hence, again,
the necessity for the reception of evidence before the trial court.

In other words, considering the dearth of evidence due to the fact that the private respondents have yet to file their answer
in the proceedings below and trial on the merits is still to be conducted, whether or not petitioners are indeed maritime
lienholders and as such may enforce the lien against the MV Estella are matters that still have to be established.

Neither are we ready to rule on the private respondents' invocation of the doctrine of forum non conveniens, as the exact
nature of the relationship of the parties is still to be established. We leave this matter to the sound discretion of the trial
court judge who is in the best position, after some vital facts are established, to determine whether special circumstances
require that his court desist from assuming jurisdiction over the suit.

Cadalin v. POEA, 1994: benito p. 43 sorry guys

Norse Management Co v. Natl Seamen Board, 1982: p.80

Bagong Filipinas Overseas Corp v. NLRC, 1985: p.88

Atienza v. Philimare Shiping, 1989: p.89

Saudi Arabian Airlines v, CA, 1998: p.24