Pakistan International Airlines Corporation vs. Hon. Blas F.

Ople

G.R. No. 61594, September 28, 1990

190 SCRA 90

Petition for certiorari to review the order of the Minister of Labor.

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 or not the employment contract is the governing law between the parties and not the provisions of the
Labor Code.

2. ADR ISSUE: WON the provision in the contract that the venue for settlement of any dispute arising out of or in
connection with the agreement is to be resolved only in courts of Karachi Pakistan is valid.

RULING:

1. 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.

2. These circumstances – the employer-employee relationship between the parties; the contract being not only
executed in the Philippines, but also performed here, at least partially; private respondents are Philippine citizens and
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 – show that the Philippine courts and administrative agencies are the proper fora for the resolution of
contractual disputes between the parties. The employment agreement cannot be given effect so as to bar Philippine
agencies and courts vested with jurisdiction by Philippine law. Moreover, PIA failed to plead and proved the contents of
Pakistan law on the matter, it is therefore presumed that the applicable provisions of the law of Pakistan are the same
as the applicable provisions of Philippine law. Hence, the provision in the contract that the venue for settlement of any
dispute arising out of or in connection with the agreement is to be resolved only in courts of Karachi Pakistan is not
valid.

NOTES:
Contracts; Parties may not contract away applicable provisions of law especially peremptory provisions dealing with
matters heavily impressed with public interest. The principle of party autonomy in contracts is not absolute. – 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.

Labor Law; A contract providing for employment with a fixed period was not necessary unlawful. – In Brent School, Inc.,
et.al. v. Ronaldo Zamora, etc., et.al. the Court had occasion to examine in detail the question of whether employment
for a fixed term has been outlawed under the above quoted provisions of the Labor Code. After an extensive
examination of the history and development of Articles 280 and 281, the Court reached the conclusion that a contract
providing for employment with a fixed period was not necessarily unlawful: “There can of course be no quarrel with the
proposition that where from the circumstances it is apparent that periods have been imposed to preclude acquisition of
tenurial security by the employee, they should be struck down or disregarded as contrary to public policy, morals, etc. But
where no such intent to circumvent the law is shown, or stated otherwise, where the reason for the law does not exist
e.g. where it is indeed the employee himself who insists upon a period or where the nature of the engagement is such
that, without being seasonal or for a specific project, a definite date of termination is a sine qua non would an
agreement fixing a period be essentially evil or illicit, therefore anathema Would such an agreement come within the
scope of Article 280 which admittedly was enacted “to prevent the circumvention of the right of the employee to be
secured in . . . (his) employment?” As it is evident from even only the three examples already given that Article 280 of
the Labor Code, under a narrow and literal interpretation, not only fails to exhaust the gamut of employment contracts
to which the lack of a fixed period would be an anomaly, but would also appear to restrict, without reasonable
distinctions, the right of an employee to freely stipulate with his employer the duration of his engagement, it logically
follows that such a literal interpretation should be eschewed or avoided. The law must be given reasonable
interpretation, to preclude absurdity in its application. Outlawing the whole concept of term employment and
subverting to boot the principle of freedom of contract to remedy the evil of employers” using it as a means to prevent
their employees from obtaining security of tenure is like cutting off the nose to spite the face or, more relevantly, curing
a headache by lopping off the head. xxx xxx xxx Accordingly, and since the entire purpose behind the development of
legislation culminating in the present Article 280 of the Labor Code clearly appears to have been, as already observed, to
prevent circumvention of the employee’s right to be secure in his tenure, the clause in said article indiscriminately and
completely ruling out all written or oral agreements conflicting with the concept of regular employment as defined
therein should be construed to refer to the substantive evil that the Code itself has singled out: agreements entered into
precisely to circumvent security of tenure. It should have no application to instances where a fixed period of employment
was agreed upon knowingly and voluntarily by the parties, without any force, duress or improper pressure being
brought to bear upon the employee and absent any other circumstances vitiating his consent, or where it satisfactorily
appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance
whatever being exercised by the former over the latter. Unless thus limited in its purview, the law would be made to
apply to purposes other than those explicitly stated by its framers; it thus becomes pointless and arbitrary, unjust in its
effects and apt to lead to absurd and unintended consequences. (emphasis supplied)

Contracts; Conflicts of Law; When the relationship between the parties is much affected by public interest, the otherwise
applicable Philippine laws and regulations cannot be rendered illusory by the parties agreeing upon some other law to
govern their relationship. – 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
King Mau Wu v Sycip

Topic: Choice of the Forum Clause

Doctrine: Contracts executed in foreign country, cognizable by local courts; no conflict of laws where question involved
is to enforce obligation arising from contract.

Facts:

(1) This claim involves an action filed by King Mau Wu to collect P59,082.92 with interests, arising out of a shipment of
1,000 tons of coconut oil emulsion sold by King, as agent of the Sycip, to Jas. Maxwell Fassett, who in turn assigned it
to Fortrade Corporation.

(2) Under an agency agreement set forth in a letter in New York addressed to and accepted by Sycip, King was made the
executive agent of Sycip in the sale of Philippine coconut oil and its derivatives outside the Philippines, and was to
be paid 2½% on the total actual sale price of sales obtained through his efforts, and in addition thereto, 50% of the
difference between the authorized sale price and the actual price.

(3) After trial, the Court rendered judgment as prayed for in the complaint in favor of King.

(4) Sycip filed a motion for new trial based on newly discovered evidence, which consists of:

a. Duplicate original of a letter covering the sale of 1,000 tons of coconut oil soap emulsion signed by Maxwell to
Sycip;

b. L/C of Chemical Bank & Trust Company in favor of Maxwell, and assigned to Sycip;

c. A letter by the Fortrade Corporation to Maxwell, whereby Fortrade placed a firm order of 1,000 metric tons of
coconut oil soap emulsion and Maxwell accepted.

(5) However, the motion was denied. Hence, Sycip appealed from the said judgment.

(6) Both parties are agreed that the only transaction or sale made by King, as agent of Sycip, was that of the subject
coconut oil.

a. King still maintains that he is entitled to the claimed commissions.

b. Sycip contends that the coconut oil transaction as aforementioned was not covered by the agency contract as it
formed part of an independent and separate transaction, agreed upon on an earlier date, for which King has
already been compensated. Moreover, he contends that as the contract was executed in New York, CFI-Manila
has no jurisdiction over this case.

Issue: W/N CFI Manila has jurisdiction herein, despite the execution of the contract in New York. (YES)

Held:

(1) Although the contract of agency was executed in New York, CFI Manila has jurisdiction to try a personal action
for the collection of a sum of money arising from such contract, because a non-resident may sue a resident in
the courts of this country where the defendant may be summoned and his property leviable upon execution in
case of a favorable, final and executory.
 (2) There is no conflict of laws involved in this case because it is only a question of enforcing an obligation created
by or arising from contract, and unless the enforcement of the contract be against public policy of the forum, it
must be enforced.

(3) As to the merits of the case, there can be no doubt that the sale of the 1,000 metric tons of coconut oil was not
a separate and independent contract from that of the agency agreement.

o This is proven by 2 letters and a telegram written by Sycip, wherein he himself confirmed the said
transaction and King’s commission.

o The letter upon which Sycip relies for his defense is one of the several drafts which led to the execution of
the agency agreement. Although such letter does not stipulate on the commission to be paid to King as
agent, yet if he paid King a 2½% commission on the first 3 coconut emulsion shipments, there is no reason
why he should not pay him the same commission on the last shipment.

Disposition: Hence, King is entitled to collect 7,598.88 for commission and P50,000 for ½ of the overprice or a total of
P57,589.88, with lawful interests.
LUZ J. HENSON, Petitioner, v. THE INTERMEDIATE APPELLATE COURT, ELY FUDERANAN and LUISA
COMMENDADOR, Respondents.

The petitioner leases out office spaces in her building at #494 Soldado Street, Ermita, Manila. The lessee in the disputed
lease contract was designated as Sto. Niño Travel and Tour Agency, a sole proprietorship duly organized and existing
under the laws of the Philippines, represented by private respondent Ely Fuderanan, its President and General Manager.

On May 15, 1980, the petitioner received the sum of P8,000.00 as "reservation deposit" for Apartment No. 116 at Luz J.
Henson Building for which she issued a receipt to private respondent Fuderanan as follows:jgc:chanrobles.com.ph

"This reservation is good up to May 15, 1980, at 4:00 P.M.; failure to sign the Lease Contract, pay the required Three (3)
months advance rental and Three (3) months guarantee deposits, the reservation is forfeited, monthly rental is
P2,000.00 - net of W. H. Tax. Lease Contract is for one year."cralaw virtua1aw library

On the same day, the petitioner and private respondent Fuderanan entered into a lease contract. Pursuant to the lease
contract between the petitioner and private respondent Fuderanan, the latter paid Henson the deposit for rentals,
water service and four keys and cash and a postdated check as rentals due from May 15, 1980 to July 14, 1980. This
postdated check was later replaced by another postdated check of private respondent Luisa Commendador which was
dishonored due to insufficiency of funds as indicated by the bank’s dishonor slip (Exhibit D-1).

On May 30, 1980, the Chief of the Licensing and Inspection Division of the Bureau of Tourism Services, Ministry of
Tourism disapproved the request of the private respondents to transfer their office to the premises owned by the
petitioner on the ground that the place failed to meet the minimum 50 square meter-space requirement of the Bureau.

On June 10, 1980, the private respondents informed the petitioner in writing that they had to vacate the leased
premises in question on or about June 14, 1980 in view of the disapproval of their request to operate their business in
the office space rented from the petitioner.

On June 16, 1980, the petitioner notified the private respondents in writing of the dishonor of Commendador’s
postdated check.

On July 9, 1980, that petitioner wrote the private respondents demanding that they make good their dishonored check
in compliance with the terms and conditions of their lease contract.

On July 18, 1980, the private respondents replied by stating that they had to rescind the lease contract and requested
the refund of the amounts they paid by way of advance and deposit rentals less the amount of rental due (Exhibit 5).
Their request was not granted by the petitioner.

On January 16, 1981, the petitioner filed an action against the private respondents to recover the value of the
dishonored check and the amount of P22,000.00 as rental fees corresponding to the unexpired portion of the term of
the lease contract between them.

ISSUE: Whether or not the judicial interpretation of the lease contract amounts to the courts’ contracting for the parties

HELD:

1. CIVIL LAW, CONTRACTS; RESPECTED AS THE LAW BETWEEN THE PARTIES. — Contracts are respected as the law
between the contracting parties (Castro v. Court of Appeals, 99 SCRA 772; Escano v. Court of Appeals, 100 SCRA 197). In
the case at bar, the lease contract executed by the petitioner and the private respondents remains as the law between
them. In litigations involving the adjudication of rights and obligations between the lessor and the lessee, the lease
contract shall govern (Chua Peng Hian v. Court of Appeals, 133 SCRA 572).

2. ID.; ID.; INTERPRETED ACCORDING TO THEIR LITERAL MEANING. — The facts of the case constrain us to apply the rule
that contracts are to be interpreted according to their literal meaning when the terms and conditions are clear and leave
no doubt as to the intention of the contracting parties (Gonzales v. Court of Appeals, 124 SCRA 630; Matienzo v.
Servidad, 107 SCRA 276; see also Article 1370 of the Civil Code of the Philippines). It was error on the part of appellate
court to make room for construction of the provisions of the subject lease contract when the case plainly calls for
application thereof. We reiterate our ruling in the case of San Mauricio Mining Company v. Ancheta (105 SCRA 371, 418)
that: . . .." . . The primary and elementary rule of construction of documents is that when the words or language thereof
s clear and plain or readily understandable by any ordinary reader thereof, there is absolutely no room for interpretation
or construction anymore. . . . ." (See also Pichel v. Alonzo, 111 SCRA 341)

3. REMEDIAL LAW; COURTS; HAVE NO POWER TO MAKE CONTRACTS FOR THE PARTIES. — The first stipulation in the
disputed lease contract provided for a specific period of one year as the duration of lease. This ought to be followed (See
Vda. de San Juan v. Tan, 116 SCRA 447). For the respondent court to hold the private respondents-lessees are justified in
disregarding their obligation to pay for the leased premises throughout the term of the lease due to the requirement of
the Ministry of Tourism that travel agencies must operate their business in a area mandated by the rule is tantamount to
the court’s revising the contract for the parties. The courts, be it the original trial court or the appellate court, have no
power to make contracts for the parties (Top-Weld Manufacturing, Inc. v. ECED, S.A., 138 SCRA 118).

4. STATUTORY CONSTRUCTION; CONTRACTS; STIPULATION MUST BE READ IN RELATION TO OTHER PROVISIONS OF THE
CONTRACT. — The private respondents argue that their failure to comply with their obligations under the lease contract
may be justified by Stipulation No. 9 in the lease contract. The stipulation in the lease contract must be read in the
context of the petitioner’s business of leasing office spaces, not in that of the private respondents’ travel agency
business. The laws, ordinance, rules, regulations, and orders which the lessee ought to obey, execute, and fulfill pertain
to those relating to the business of the petitioner such as the payment of expenses for the deed of lease, the settlement
of electric, water and phone bills or the installation of safety measures in cases of fire and other similar emergencies.
SPOUSES ZALAMEA and LIANA ZALAMEA vs. CA and TRANSWORLD AIRLINES, INC.
G.R. No. 104235 November 18, 1993

FACTS:

Petitioners-spouses Cesar Zalamea and Suthira Zalamea, and their daughter, Liana purchased 3 airline tickets from the
Manila agent of respondent TransWorld Airlines, Inc. for a flight to New York to Los Angeles. The tickets of petitioners-
spouses were purchased at a discount of 75% while that of their daughter was a full fare ticket. All three tickets
represented confirmed reservations.

On the appointed date, however, petitioners checked in but were placed on the wait-list because the number of
passengers who had checked in before them had already taken all the seats available on the flight. Out of the 42 names
on the wait list, the first 22 names were eventually allowed to board the flight to Los Angeles, including petitioner Cesar
Zalamea. The two others were not able to fly. Those holding full-fare tickets were given first priority among the wait-
listed passengers. Mr. Zalamea, who was holding the full-fare ticket of his daughter, was allowed to board the plane;
while his wife and daughter, who presented the discounted tickets were denied boarding.

Even in the next TWA flight to Los Angeles Mrs. Zalamea and her daughter, could not be accommodated because it was
also fully booked. Thus, they were constrained to book in another flight and purchased two tickets from American
Airlines. Upon their arrival in the Philippines, petitioners filed an action for damages based on breach of contract of air
carriage before the RTC- Makati. The lower court ruled in favor of petitioners . CA held that moral damages are
recoverable in a damage suit predicated upon a breach of contract of carriage only where there is fraud or bad faith.
Since it is a matter of record that overbooking of flights is a common and accepted practice of airlines in the United
States and is specifically allowed under the Code of Federal Regulations by the Civil Aeronautics Board, no fraud nor bad
faith could be imputed on respondent TransWorld Airlines. Thus petitioners raised the case on petition for review on
certiorari.

ISSUE;
WON TWZ acted with bad faith and would entitle Zalameas to Moral and Examplary damages.

RULING:

The U.S. law or regulation allegedly authorizing overbooking has never been proved. Foreign laws do not prove
themselves nor can the courts take judicial notice of them. Like any other fact, they must be alleged and proved. Written
law may be evidenced by an official publication thereof or by a copy attested by the officer having the legal custody of
the record, or by his deputy, and accompanied with a certificate that such officer has custody. The certificate may be
made by a secretary of an embassy or legation, consul general, consul, vice-consul, or consular agent or by any officer in
the foreign service of the Philippines stationed in the foreign country in which the record is kept, and authenticated by
the seal of his office.
Respondent TWA relied solely on the statement of Ms. Gwendolyn Lather, its customer service agent, in her deposition
that the Code of Federal Regulations of the Civil Aeronautics Board allows overbooking. No official publication of said
code was presented as evidence. Thus, respondent court’s finding that overbooking is specifically allowed by the US
Code of Federal Regulations has no basis in fact.
Even if the claimed U.S. Code of Federal Regulations does exist, the same is not applicable to the case at bar in
accordance with the principle of lex loci contractus which require that the law of the place where the airline ticket was
issued should be applied by the court where the passengers are residents and nationals of the forum and the ticket is
issued in such State by the defendant airline. Since the tickets were sold and issued in the Philippines, the applicable law
in this case would be Philippine law.

Existing jurisprudence explicitly states that overbooking amounts to bad faith, entitling the passengers concerned to an
award of moral damages. In Alitalia Airways v. Court of Appeals, where passengers with confirmed bookings were
refused carriage on the last minute, this Court held that when an airline issues a ticket to a passenger confirmed on a
particular flight, on a certain date, a contract of carriage arises, and the passenger has every right to expect that he
would fly on that flight and on that date. If he does not, then the carrier opens itself to a suit for breach of contract of
carriage. Where an airline had deliberately overbooked, it took the risk of having to deprive some passengers of their
seats in case all of them would show up for the check in. For the indignity and inconvenience of being refused a
confirmed seat on the last minute, said passenger is entitled to an award of moral damages.

For a contract of carriage generates a relation attended with public duty — a duty to provide public service and
convenience to its passengers which must be paramount to self-interest or enrichment.

Respondent TWA is still guilty of bad faith in not informing its passengers beforehand that it could breach the contract of
carriage even if they have confirmed tickets if there was overbooking. Respondent TWA should have incorporated
stipulations on overbooking on the tickets issued or to properly inform its passengers about these policies so that the
latter would be prepared for such eventuality or would have the choice to ride with another airline.

Respondent TWA was also guilty of not informing its passengers of its alleged policy of giving less priority to discounted
tickets. Neither did it present any argument of substance to show that petitioners were duly apprised of the overbooked
condition of the flight or that there is a hierarchy of boarding priorities in booking passengers. It is evident that
petitioners had the right to rely upon the assurance of respondent TWA, thru its agent in Manila, then in New York, that
their tickets represented confirmed seats without any qualification. The failure of respondent TWA to so inform them
when it could easily have done so thereby enabling respondent to hold on to them as passengers up to the last minute
amounts to bad faith. Evidently, respondent TWA placed its self-interest over the rights of petitioners under their
contracts of carriage. Such conscious disregard of petitioners’ rights makes respondent TWA liable for moral damages.
To deter breach of contracts by respondent TWA in similar fashion in the future, we adjudge respondent TWA liable for
exemplary damages, as well.

In the case of Alitalia Airways v. Court of Appeals, this Court explicitly held that a passenger is entitled to be reimbursed
for the cost of the tickets he had to buy for a flight to another airline. Thus, instead of simply being refunded for the cost
of the unused TWA tickets, petitioners should be awarded the actual cost of their flight from New York to Los Angeles.

WHEREFORE, the petition is hereby GRANTED and the decision of the respondent Court of Appeals is hereby MODIFIED
THE GOVT OF THE PHILIPPINE ISLANDS vs. FRANK
G. R. No. 2935
March 23, 1909

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.
MOLINA VS DELA RIVA

This is an action to recover a debt due upon a contract executed July 27, 1903, whereby plaintiff transferred to the
defendant the abaca and copra business theretofore carried on by him at various places in the Island of Catanduanes,
with all the property and right pertaining to the said business, or the sum of 134,636 pesos and 12 cents, payable in
Mexican currency or its equivalent in local currency. Defendant paid at the time of the execution of the contract, on
account of the purchase price, the sum of P33,659 pesos and 3 cents, promising to pay the balance on three installments
P33,659 pesos and 3 cents each, with interest at the rate of 5 per cent per annum from the date of the contract. The first
installment became due July 27, 1904. It was for the recovery of this first installment that their action was brought in the
Court of First Instance of the City of Manila.

Defendant demurred to the complaint on the ground that the court had no jurisdiction of the subject of the action. The
court overruled the demurrer and defendant refused to and did not, as a matter of fact, answer plaintiff's complaint.

Judgment having been rendered in favor of the plaintiff for the sum of 33,659 pesos and 3 cents, Mexican currency,
equal to 30,052 pesos and 70 centavos, Philippine currency, an interest thereon at the rate of 5 per cent per annum
from July 27, 1903 and costs, the defendant duly excepted.

ISSUES AND RULING:

The second error assigned by the appellant is that the court erred in fixing in Philippine currency the sum which the
appellee should recover, without hearing evidence as to the relative value of Mexican and Philippine currency. The
amount sought to be recovered in this action, under the terms of the contract, was 33,859 pesos and 3 cents, payable in
Mexican currency, or its equivalent in local currency.

In paragraph 4 of the complaint it is alleged that —

Under the terms of the contract the actual amount due from defendant to plaintiff, converted into Philippine currency is
28,049 pesos and 19 centavos . . .

This contention was not denied by the defendant, who, as has been said before, simply demurred to the complaint.
Plaintiff's allegation must therefore be deemed admitted. Consequently it was not necessary for the court to hear
evidence as to the relative value of Mexican and Philippine currency. There is no dispute between the parties as to the
fact that the 33,659 pesos and 3 Cents, Mexican currency, referred to in the contract, were equal to 28,049 pesos and 19
centavos, Philippine currency, at the time of the filing of the complaint.

The proof required by section 3 of Act No. 1045, cited by the appellant, should be received only when the parties
disagree as to the relative value of the currency. The court below did not, therefore, err in not hearing evidence upon
this point, even under the assumption that no such evidence as heard in regard thereto, as claimed by the appellant.

The appellant also assigns as error the fact that defendant was given the option to pay the debt either in Mexican or
Philippine currency, claiming that the court should have directed payment to be made in the latter currency as required
by Act No. 1045. Assuming that this contention is correct, it should nevertheless be true that it did not prejudice any of
his essential rights. He was rather favored thereby, since he was given an option to pay in whatever currency he might
see fit. It is well known that in the case of an alternative obligation the debtor has the right to choose the method of
meeting the obligation unless the creditor has expressly reserved that right to himself. (Art. 1132 of the Civil Code.)

The alleged violation by the court below of the provisions of Act No. 1045 in this particular respect is not therefore, a
sufficient ground for the reversal of the judgment. Section 503 of the Code of Civil Procedure provides that no judgment
shall be reversed for such error as has not prejudiced the substantial rights of the excepting party.

The third error assigned by the appellant is that the court erred in rendering judgment in a sum larger than that sought
to be recovered in the complaint. The prayer of the complaint is for the specific amount of 28,049 pesos and 19
centavos, Philippine currency, and the court in its judgment ordered the defendant to pay to the plaintiff 30,052 pesos
and 70 centavos, in the same currency.
Section 126 of the Code of Civil Procedure provides in part as follows:

The relief granted to the plaintiff, if there be no answer, can not exceed that which he shall have demanded in his
complaint. . . ."

The defendant failed to answer. Under such circumstances plaintiff could not have obtained more than what he had
demanded in his complaint. Plaintiff's demand was for the sum of 28,049 pesos and 19 centavos only. The court had no
power to enter judgment in favor of the plaintiff for 30,052 pesos and 70 centavos. We hold that this was error on the
part of the trial court. The judgment of the court below should be modified in this respect.
[G.R. No. 9403. November 4, 1914. ]

ALLAN A. BRYAN ET AL., Plaintiffs-Appellees, v. EASTERN & AUSTRALIAN S. S. CO., LTD., Defendant-Appellant.

Facts:

The plaintiffs were passengers on the streamer St. Albans, which was the property of the defendant corporation and was
engaged in carrying freight and passengers between Shanghai, China, and Manila, Philippine Islands.

On or about the end of December, 1912, the plaintiffs bought from the defendant’s agent in Shanghai, two first-class
tickets for Manila aboard steamship St. Albans. The tickets delivered to them were in English, which language plaintiffs
read with ease and understand perfectly, and bore on their face, in large print, a statement that they were issued
subject to the conditions printed on the back. One of these conditions, printed in legible type, was as follows: "Personal
baggage. — In order to insure as far as possible the safe custody of luggage, passengers should personally see their
luggage delivered on board. Each adult saloon passenger may carry, free of charge, but at his own risk, 20 cubic feet of
luggage; and each steerage passenger 10 cubic feet, under similar conditions (all in excess of these quantities must be
paid for at the current rate of freight); but the company will not hold itself responsible for any loss, or damage to or
detention, or overcarriage of luggage, under any circumstances whatsoever unless it has been booked and paid for as
freight."

At the time the tickets were delivered to plaintiffs in Shanghai their attention was not especially drawn to the provisions
on the back of the ticket. The plaintiffs put their baggage on the St. Albans without paying for its transportation as
freight and traveled with such baggage to Manila.

Shortly after its arrival in Manila,the plaintiffs’ baggage was taken out of the hold of the ship to be placed on the dock
alongside of which the vessel was berthed. The baggage was placed in a sling, consisting of a single rope wound once
around the trunks, and was swung from the side of the vessel. While still several feet above the wharf, the employee of
the defendant company who was operating the winch, by some act or other, permitted the baggage to drop with great
rapidity. In its passage downward, it struck the side of the ship with such force as to release it from the sling and it
dropped into the water alongside of the ship.

The defendant, while admitting the damage caused to plaintiff’s baggage, denied that it was the result of the company’s
negligence and set up as a special defense the limitation of liability established by the contract under which the
defendant undertook to transport the plaintiffs from the city of Hongkong to Manila.

The trial court ruled in favor of the plaintiffs. The shipping company appealed.

Issues: 1. What law should govern the contract between plaintiffs and respondent company.

2. Whether respondent company is liable for the negligence of its employees.

Held: 1. A contract made in Hongkong for the transportation of persons and baggage from Hongkong to Manila will be
construed according to the law of the Colony of Hongkong and will be enforced in the Philippine Islands in accordance
with that law, provided it is not in violation of a law or the public policy of the Philippine Islands.

The evidence relative to the law governing contracts in Hongkong consists of the testimony of a Hongkong barrister,
learned in the law of England and her colonies, and is to the effect that, under the law inforce at the place where the
contract was made, the contract was valid and enforceable, and that it is not necessary that the attention of persons
purchasing tickets from common carriers be drawn specially to the terms thereof when printed upon a ticket which on
its face shows that it is issued subject to such conditions.The barrister also testified that under the law of England and
her colonies everything was done which was necessary to make the terms printed on the back of the tickets a part of the
contract between the parties. Herein, it is undoubted that the contract found upon the back of the tickets is a contract
perfectly valid in England and her colonies and one which would be enforced according to its terms in British
jurisdictions.

2. The respondent company is liable for the negligence of its employees.

An exemption in general words not expressly relating to negligence, even though the words are wide enough to include
loss by negligence or default of carriers’ servants, must be construed as limiting the liability of the carrier as assurer, and
not as relieving him from the duty of exercising reasonable skill and care. Unless the contract of exemption specifically
refers to exemption for negligence, it will be construed as simply exempting the carrier from his liability as insurer.
Eastern Shipping Lines vs. The Nisshin Fire and Marine Insurance Co., and Dowa Fire and Marine Insurance Co., Ltd.
No. 71478. May 29, 1987

150 SCRA 463

FACTS: En route from Kobe, Japan to Manila, M/S Asiatica, the vessel owned by petitioner carrier, Eastern Shipping Lines
caught fire and sank, resulting in the total loss of ship and cargo. The crew did not know what caused the fire. When
they noticed the smoke, there was already a big fire which might have started twenty-four (24) hours before they
became aware of it. The respective respondent Insurers paid the corresponding marine insurance values to the
consignees concerned and were thus subrogated unto the rights of the latter as the insured.

See details below:

G.R. No. L-69044

Insurer 1 – Development Insurance and Surety Corporation
Cargo and Consignee 1a – 5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00 consigned to
Philippine Blooming Mills Co., Inc.
Cargo and Consignee 1b – 7 cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc.

G.R. No. 71478

Insurer 2 – Nisshin Fire & Marine Insurance Co
Cargo and Consignee 2 – 128 cartons of garment fabrics and accessories, in two (2) containers, consigned to Mariveles
Apparel Corporation

Insurer 3 – Dowa Fire & Marine Insurance Co., Ltd.

Cargo and Consignee 3 – Two cases of surveying instruments consigned to Aman Enterprises and General Merchandise.

ISSUES:
1. Which law is applicable, the Civil Code provisions on Common Carriers or the Carriage of Goods by Sea Act?
2. Who has the burden of proof to show negligence of the carrier? It is petitioner-carrier’s contention that in accordance
with COGSA, when loss of fire is established, burden of proof on negligence shifts to the shipper.
3. Will loss caused by fire exempt the carrier from liability?

4. What is the extent of carrier’s liability?

RULING:
1. The law of the country to which the goods are to be transported governs the liability of the common carrier in case of
their loss, destruction or deterioration. As the cargoes were transported from Japan to the Philippines, the liability of
petitioner-carrier is governed primarily by the Civil Code. However, in all matters not regulated by the Civil Code, the
rights and obligations of common carrier shall be governed by the Code of Commerce and by special laws. Thus, the
Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code.

2. In accordance with the New Civil Code, the burden of proving that it has exercised the extraordinary diligence
required by law, after finding that transported good were lost caused by fire falls upon the carrier.

3. No. Fire may not be considered a natural disaster or calamity like those enumerated in Article 1734 as it arises almost
invariably from some act of man or by human means. It does not fall within the category of an act of God unless caused
by lightning or by other natural disaster or calamity.

If fire were to be considered a “natural disaster” within the meaning of Article 1734 of the Civil Code, it is required under
Article 1739 that the “natural disater” must have been the proximate and only cause of the loss, and that the carrier
has exercised due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster.

4. Since there was actual fault on the part of the carrier, it is liable for the loss. Article 1749 allows the limitation of
liability. Although the Code expressly permits a stipulation limiting the liability of a carrier it does not of itself limit the
liability to a fixed amount per package. Thus, the COGSA which is suppletory to the provisions of the Civil Code,
supplements by establishing a statutory provision limiting the carrier’s liability in the absence of a declaration of a higher
value of goods, which should not exceed US$500 per package.

NOTES:

Carriage Of Goods By Sea Act (COGSA)

APPLICATION

As a general rule, COGSA only applies to foreign trade. But it may also apply to domestic trade when there is a
paramount clause in the contract.

PARAMOUNT CLAUSE – It is a clause which attracts the application of another law to govern the rights and obligations of
the parties. Hence, the parties can stipulate that the COGSA will apply to the contract of carriage and not the Civil Code
or Code of Commerce.
SHEWARAM VS. PHILIPPINE AIRLINES

Facts:

 Parmanand Shewaram, a Hindu from Davao, boarded a PAL plane bound for Manila from Zamboanga. He
checked in 3 baggages: a suitcase and 2 other bags. PAL’s personnel mistagged his baggage to “Iligan” instead of
“Manila.”

o The baggage was said to be tampered when it was found.

 Among his baggage was a camera with P800.00 and it was lost. PAL offered to pay P100.00. Shewaram wanted
full payment of P800.00.

 A PAL ticket, on the reverse side, stated in fine print: “The liability, if any, for loss or damage to checked baggage
or for delay in the delivery thereof is limited to its value and, unless the passenger declares in advance a higher
valuation and pay an additional charge therefor, the value shall be conclusively deemed not to exceed P100.00
for each ticket.”

 PAL maintains that in view of the failure of the Shewaram to declare a higher value for his luggage, and pay the
freight on the basis of said declared value when he checked such luggage at the Zamboanga City airport,
pursuant to the abovequoted condition, appellee can not demand payment from the appellant of an amount in
excess of P100.00.

Issue: Whether the limited liability rule shall apply in the case at bar?

Held: NO. The limited liability rule shall not apply.

Since this is a stipulation on qualified liability, which operates to reduce the liability of the carrier, the carrier and the
shipper must agree thereupon. Otherwise, the carrier will be liable for full. PAL is fully liable (for full) because Shewaran
did not agree to the stipulation on the ticket, as manifested by the fact that Shewaram did not sign the ticket. Ticket
should have been signed.

Article 1750 of the New Civil Code which provides as follows: A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.

In accordance with the above-quoted provision of Article 1750 of the New Civil Code, the pecuniary liability of a
common carrier may, by contract, be limited to a fixed amount. It is required, however, that the contract must be
"reasonable and just under the circumstances and has been fairly and freely agreed upon."
KLM v. CA

SUMMARY: The Mendozas approached Tirso Reyes of the Phil. Travel Bureau with regard to a world tour they
wanted to undertake. The itinerary indicated that three segments of the trip would be by KLM. One of the routes
they would take was Barcelona-Lourdes, with the knowledge that the only carrier serving that route was Aer Lingus.
After Reyes made the necessary reservations, KLM secured the seat reservations with the exception of Aer Lingus.
When the Mendozas left for their trip, the coupon for Aer Lingus was marked “on request.” When the Mendozas
were in Germany, they acquired confirmation from Aer Lingus. At Barcelona Airport, the Mendozas’ daughter and a
niece were allowed to board, but the Mendozas themselves were off loaded from the Aer Lingus flight upon orders
of the Aer Lingus manager, who brusquely shoved them aside and shouted at them. The Mendozas were then
forced to take a train from Barcelona to Lourdes. They subsequently filed a complaint for damages against KLM. In
ruling in favor of the Mendozas, the SC said that the “Warsaw Convention” cannot be applied to this case

DOCTRINE: The Warsaw Convention cannot be applied in cases wherein no delay or accident occurred.

[Implied] Delay is to be interpreted in its ordinary meaning. Being ‘bumped off’ a flight does not constitute delay in
the ordinary sense.

FACTS: In 1965, Spouses Mendoza approached Tirso Reyes, manager of a branch of the Philippine Travel Bureau 1, a
travel agency, for a world tour they intended to make with their daughter and a niece. According to the itinerary given
by Reyes, three segments of the trip, the longest, was via KLM. The spouses decided that one of the routes they will take
was a Barcelona-Lourdes route with knowledge that only one airline, Aer Lingus, served it.

Reyes made the necessary reservations with the approval of the spouses. In response to this, KLM secured the seat
reservations from the carriers which would ferry the Spouses and their daughter and a niece throughout their trip, with
the exception of Aer Lingus. When the Mendozas left the Philippines, they were issued KLM tickets for the entire trip.
However, their coupon for Aer Lingus was marked “on request”.

When they were in Germany, they went to the KLM office and obtained a confirmation from Aer Lingus. At the airport in
Barcelona, the Mendozas and their companions checked in for their flight to Lourdes. However, although their daughter
and niece were allowed to take the flight, the spouses Mendozas were off loaded on orders of the Aer Lingus manager,
who brusquely shoved them aside with the aid of a policeman and shouted at them (Conos! Ignorantes Filipinos!). Mrs.
Mendoza later called the manager of Aer Lingus and asked that they be given the means to get to Lourdes, but their
request was denied. Acting on the advice of a stranger, the spouses Mendoza took a train ride to Lourdes instead.

Thus, they filed a complaint for damages against KLM for breach of contract of carriage. The trial court decided in favor
of the Mendozas. On appeal, the CA affirmed the decision.

KLM’s arguments:

1. They should be exculpated on the basis of the “Warsaw Convention 2” of which the Philippine Government is a
party by adherence. According to Art. 30 of said convention, the aggrieved party can only take action against the

1 The travel agency was an agent for international air carriers which are members of the International Air Transport Association [IATA], of which both KLM and
Aer Lingus are members.
2
ART. 30. (1) In the case of transportation to be performed by various successive carriers and failing within the definition set out in the third paragraph of Article I, each
carrier who accepts passengers, baggage, or goods shall be subject to the rules set out in the convention, and shall be deemed to be one of the contracting parties to
the contract of transportation insofar as the contract deals with that part of transportation which is performed under his supervision.

(2) In the case of transportation of this nature, the passenger or his representative can take action only against the carrier who performed the transportation during
which the accident or the delay occured, save in the case where, by express agreement, the first carrier has assumed liability for the whole journey.
 carrier if an accident or delay occurred. Since no such accident or delay occurred, they should be free from
liability.

2. Under the “conditions of the contract” placed on the inside front cover of the ticket, “[a] carrier issuing a ticket
or checking baggage for carriage over the lines of others does so only as agent.”

3. All that KLM did was to request seat reservations. Therefore, KLM merely acted as a ticket-issuing agent.

Spouses Mendoza’s arguments:

1. Art. 30 of the “Warsaw Convention” cannot be applied to this case for it involves not action or delay but willful
misconduct on the part of KLM’s agent, the Aer Lingus. Art. 25 3 of the “Warsaw Convention” is instructive on the
matter.

2. The condition referred to by KLM on the “conditions of the contract” is written in so small a print that a
magnifying glass is needed to view it.

3. The first paragraph of the same conditions indubitably states that the contract was one of continuous air
transportation.

4. The contract of air transportation was exclusively between the Spouses Mendoza and KLM, the latter merely
endorsing its performance to other carriers like Aer Lingus.

ISSUES: WON KLM is liable for breach of contract of carriage

RULING: YES, KLM is liable for breach of contract of carriage.

RATIO:

1. The provision of the “Warsaw Convention” being relied upn by KLM is inapplicable. It presupposes that accident
or delay occurred, neither of which happened at Barcelona Airport. Instead, it was Aer Lingus that refused to
take the Mendozas to their destination.

2. KLM’s reliance on the “conditions of the contract” is untenable. Not only was the fine print so small, no steps
were taken by KLM to inform the Mendozas of such conditions. Therefore, the Mendozas cannot be bound by
the provision in question wherein KLM’s unilaterally declared that it was a mere ticket-issuing agent.

3. The same conditions also say that the carriage to be provided by several carriers is to be regarded as a single
operation, which is the direct opposite of KLM’s theory that the Mendoxas entered into several independent
contracts with the carriers that took them to their destinations.

4. The breach of KLM’s guarantee was further aggravated by the highly arbitrary and discourteous act of the Aer
Lingus official.

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

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

(2) Similarly, the carrier shall not be entitled to avail himself of the said provisions, if the damage is caused under the same circumstances by any agent of the
carrier acting within the scope of his employment. (emphasis by respondents)
PAN AMERICAN AIRWAYS INC V. JOSE K. RAPADAS, G.R. NO 60673 (1992)

FACTS: Private respondent Jose Rapadas purchased a plane ticket from Pan American Airways bound for Manila from
Guam.

1. On January 16, 1975, while Rapadas was waiting to check in at the Guam Airport, he was ordered by Pan
American’s hand carry control agent to check-in his Samsonite attaché case. Rapadas protested; arguing that
other co-passengers were allowed to hand carry bulkier baggage

2. As such, he went to the end of line hoping that he would not have to register his luggage. However, the same
man in charge of hand carry control ordered him to register his bag

3. Fearing that he would miss his flight, he agreed to check it in. He then gave his bag to his brother who happened
to be around and who checked it in for him, without declaring its contents or the value thereof

4. Upon arrival in Manila, Rapadas claimed and was given all his checked-in luggage without the exception of the
Samsonite attaché case. As such, Rapadas filed a claim with petitioner’s Manila Baggage Service. However, Pan
American was unable to locate the lost bag.

5. As such, Pan Am Airways offered to settle the lost for $160 representing the airline’s limit of liability for loss or
damage to a passenger’s personal property under the contract of carriage between Rapadas and Pan Am.

6. Rapadas refused and filed an action for damages against Pan Am. He alleged that Pan Am singled him out in
ordering his luggage to be checked in and that the airlines neglected in its duty in handling and safekeeping his
luggage. He alleged that the value of the lost bag and its contents was $42,403.90, the loss resulted in his failure
to pay certain monetary obligations, failure to remit money sent through him to relatives, inability to enjoy the
fruits of his retirement and vacation pay earned from working in Tonga Construction Co

7. In its answer, Pan Am acknowledged responsibility for the loss of the suitcase but asserted that the claim was
subject to the notice of baggage liability limitations printed at the back of the plane ticket and posted in its
offices

8. The trial court held in favor of Rapadas, rejecting Pan Am’s claim that its liability under the passenger ticket is
only up to $160. CA affirmed the same

ISSUE: WON a passenger is bound by the terms of a passenger ticket declaring the limitations of liability set forth in the
Warsaw Convention

HELD: Yes. 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.

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

The facts show that the private respondent actually refused to register the attaché case and chose to take it with him
despite having been ordered by the PAN AM agent to check it in. In attempting to avoid registering the luggage by going
back to the line, private respondent manifested a disregard of airline rules on allowable hand-carried baggage. Prudence
of a reasonably careful person also dictates that cash and jewelry should be removed from checked-in-luggage and
placed in one's pockets or in a hand-carried Manila-paper or plastic envelope.

The alleged lack of enough time for him to make a declaration of a higher value and to pay the corresponding
supplementary charges cannot justify his failure to comply with the requirement that will exclude the application of
limited liability. Had he not wavered in his decision to register his luggage, he could have had enough time to disclose
the true worth of the articles in it and to pay the extra charges or remove them from the checked-in-luggage. Moreover,
an airplane will not depart meantime that its own employee is asking a passenger to comply with a safety regulation.

Passengers are also allowed one hand-carried bag each provided it conforms to certain prescribed dimensions. If Mr.
Rapadas was not allowed to hand-carry the lost attaché case, it can only mean that he was carrying more than the
allowable weight for all his luggage or more than the allowable number of hand-carried items or more than the
prescribed dimensions for the bag or valise. The evidence on any arbitrary behavior of a Pan Am employee or
inexcusable negligence on the part of the carrier is not clear from the petition. Absent such proof, we cannot hold the
carrier liable because of arbitrariness, discrimination, or mistreatment.

It does not mean, however, that passengers are always bound to the stipulated amounts printed on a ticket, found in a
contract of adhesion, or printed elsewhere but referred to in handouts or forms. The reasons behind stipulations on
liability limitations arise from the difficulty, if not impossibility, of establishing with a clear preponderance of evidence
the contents of a lost valise or suitcase. Unless the contents are declared, it will always be the word of a passenger
against that of the airline. If the loss of life or property is caused by the gross negligence or arbitrary acts of the airline or
the contents of the lost luggage are proved by satisfactory evidence other than the self-serving declarations of one
party, the Court will not hesitate to disregard the fine print in a contract of adhesion. Otherwise, the Court is
constrained to rule on the basis of the provisions of the contract.
Serra vs CA

FACTS:

Petitioner is the owner of a 374 square meter parcel of land in Masbate, Masbate. Sometime in1975, private
respondent Rizal Commercial Banking Corp., in its desire to put up a branch inMasbate, Masbate, negotiated with
petitioner for the purchase of the then unregistered property.On May 20, 1975, a contract of lease with option to buy
was contracted by the parties. Pursuantto said contract, a binding and other improvements were constructed on the
land which housedthe branch office of RCBC in Masbate, Masbate. Within three years from the signing of thecontract,
petitioner complied with his part of the agreement by having the property registered and placed under the TORRENS
SYSTEM, for which OCT was issued by the Register of Deeds ofthe Province of Masbate.Petitioner alleges that as soon as
he had the property registered, he kept on pursuing the managerof the branch to effect the sale of the lot as per their
agreement. It was not until September 4,1984, however, when the respondent bank decided to exercise its option and
informed petitioner,of its intention to buy the property at the agreed price of not greater than P210.00 per squaremeter
or a total of P78,430.00. But much to the surprise of the respondent, petitioner replied thathe is no longer selling the
property.Hence, a complaint for specific performance and damages were filed by respondent against petitioner. In the
complaint, respondent alleged that during the negotiations it made clear to petitioner that it intends to stay
permanently on property once its branch office is opened unlessthe exigencies of the business requires otherwise. Aside
from its prayer for specific performance, it likewise asked for an award of P50,000.00 for attorney’s tees PIOO,OOO.OO
as exemplary damages and the cost of the suit.

ISSUES:

1. Whether or not the disputed contract is a contract of adhesion.2. Whether or not the petitioner may be compelled to
exercise the option to buy before the timeexpires.3. Whether or not there was no consideration to support the option,
distinct from the price, hencethe option cannot be exercised.

HELD:

1. No. A contract of adhesion is one wherein a party usually a corporation, prepares thestipulations in the contract
while the other party merely affixes his signature or his adhesionthereto. These types of contract are as binding as
ordinary contracts. Because in reality, the party who adheres to the contract is free to reject it entirely although this
Court will not hesitate to ruleout blind adherence to terms where facts and circumstances will show that it is basically
one-sided.We do not find the situation in the present case to be inequitable. Petitioner is a highly educatedman, who, at
the time of the trial was already a CPA-Lawyer, and when he entered into thecontract, was already a CPA, holding a
respectable position with the Metropolitan ManilaCommission. It is evident that a man of his stature should have been
more cautious intransactions he enters into, particularly where it concerns valuable properties. He is amplyequipped to
drive a hard bargain if he would be so minded to.2. No. In a unilateral promise to sell, where the debtor fails to withdraw
the promise before theacceptance by the creditor, the transaction becomes a bilateral contract to sell and to
buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is already ameeting of the minds
of the parties as to the thing which is determinate and the price which iscertain. In which case, the parties may then
reciprocally demand performance.Jurisprudence has taught us that an optional contract is a privilege existing only in
one party ¬ the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, acertain
merchandise or properly, at any time within the agreed period, at a fixed price. This beinghis prerogative, he may not be
compelled to exercise the option to buy before the time expires.3. Yes. A price is considered certain if it is so with
reference to another thing certain or when thedetermination thereof is left to the judgment of a specified person or
persons. And generally,gross inadequacy of price does not affect a contract of sale. Contracts are to be
construedaccording to the sense ai1d meaning of the terms which the parties themselves have used. In the present
dispute, there is evidence to show that the intention of the parties is to peg the price atP210 per square meter.
SWEET LINES INC. vs. TEVES

FACTS:

Private respondents Atty. Leovigildo Tandog and Rogelio Tiro, a contractor by profession, bought tickets Nos. 0011736
and 011737 for Voyage 90 on December 31, 1971 at the branch office of Sweet Lines, Inc., a shipping company
transporting inter-island passengers and cargoes, at Cagayan de Oro City. Tandog and Tiro were to board petitioner's
vessel, M/S "Sweet Hope" bound for Tagbilaran City via the port of Cebu. Upon learning that the vessel was not
proceeding to Bohol, since many passengers were bound for Surigao, private respondents per advice, went to the
branch office for proper relocation to M/S "Sweet Town". Because the said vessel was already filled to capacity, they
were forced to agree "to hide at the cargo section to avoid inspection of the officers of the Philippine Coastguard."
Private respondents alleged that they were, during the trip," "exposed to the scorching heat of the sun and the dust
coming from the ship's cargo of corn grits," and that the tickets they bought at Cagayan de Oro City for Tagbilaran were
not honored and they were constrained to pay for other tickets.

In view thereof, private respondents sued petitioner for damages and for breach of contract of carriage in the alleged
sum of P10,000.00 before respondents Court of First Instance of Misamis Oriental. Petitioner moved to dismiss the
complaint on the ground of improper venue.Said motion, however, was denied by the trial court. Sweet Lines’ filed a
motion for reconsideration but to no avail. Hence, the petition.

ISSUE:

Is Condition No. 14 printed at the back of the Sweet Lines’ passage tickets, limiting the venue of actions arising from the
contract of carriage to the Court of First Instance of Cebu, valid and enforceable?

HELD:

No. Considered in the light of the foregoing norms and in the context of circumstances prevailing in the inter-island
shipping industry in the country today, We find and hold that Condition No. 14 printed at the back of the passage tickets
should be held as void and unenforceable for the following reasons: first, under circumstances obligation in the inter-
island shipping industry, it is not just and fair to bind passengers to the terms of the conditions printed at the back of the
passage tickets, on which Condition No. 14 is printed in fine letters; and second, Condition No. 14 subverts the public
policy on transfer of venue of proceedings of this nature, since the same will prejudice rights and interests of
innumerable passengers in different parts of the country who, under Condition No. 14, will have to file suits against
petitioner only in the City of Cebu.

It is a matter of public knowledge, of which We can take judicial notice, that there is a dearth of and acute shortage in
inter- island vessels plying between the country's several islands, and the facilities they offer leave much to be desired.
Thus, even under ordinary circumstances, the piers are congested with passengers and their cargo waiting to be
transported. The conditions are even worse at peak and/or the rainy seasons, when Passengers literally scramble to
whatever accommodations may be availed of, even through circuitous routes, and/or at the risk of their safety — their
immediate concern, for the moment, being to be able to board vessels with the hope of reaching their destinations. The
schedules are — as often as not if not more so — delayed or altered. This was precisely the experience of private
respondents when they were relocated to M/S "Sweet Town" from M/S "Sweet Hope" and then any to the scorching
heat of the sun and the dust coming from the ship's cargo of corn grits, " because even the latter was filled to capacity.
21 Ong Yiu v. CA
No. L-40597 (29 June 1979)
Melencio-Herrera, J. / tita K

Subject Matter: Common Carrier; Common Carriage of Goods; Agreement Limiting Liability; As to amount of liability

Summary:

Ong Yiu’s boarded PAL Cebu bound for Butuan. Upon reaching Butuan, his checked-in luggage cannot be located. PAL
Butuan reported the loss to PAL Cebu within one hour from discovery. It was then communicated to PAL Manila which
discovered that the said baggage was overcarried to Manila. The luggage was delivered to Ong Yiu the next day,
however it was already opened and some documents were missing. He filed a complaint for damages. CA did not award
moral nor exemplary damages. CA however awarded Ong Yiu P100 which was the limited liability indicated in the claim
ticket. THE SC affirmed CA and ruled that the provision in a ticket providing limited liability is a contract of adhesion
which Ong Yiu consented to by adhereing to it.

Doctrines:

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

Parties:

Petitioner Agustino B. Ong Yiu (Ong Yiu/Petitioner)

Respondent Court of Appeals and Philippine Air Lines, Inc. (PAL)

Facts:

August 26, 1967 Petitioner took a PAL flight (1:00PM) from Mactan Cebu bound for Butuan City. He was scheduled
to attend trials on August 28-31, 1967 in the said City.

Ong Yiu checked in one piece of luggage, a blue “maleta” for which he was issued a claim check.

However, when the plane arrived at Bancasi Airport, Butuan City at past 2:00 PM, his luggage
could not be found.

At 3:00 PM, PAL Butuan sent a message to PAL Cebu inquiring about the missing baggage, then
PAL Cebu Transmitted the message to PAL Manila.

PAL Manila advised PAL Cebu that the luggage had been overcarried to Manila and that it would
be forwarded to Cebu on the same day. PAL Cebu then sent a message to PAL Butuan that the
luggage will be forwarded the following day.

August 27, 1967 Ong Yiu went to Bancasi Airport to inquire about the missing baggage. However, he did not wait
and so when the flight carrying the missing luggage arrived, Ong Yiu had already left.

A certain Dagorro, a colorum car driver who use d to drive for Ong Yiu, volunteered to take the
luggage to Ong Yiu. When the porter clerk gave the luggage to him, Dagorro then examined the
lock, pressed it and it opened.

When Dagorro delivered the “maleta” to petitioner, he informed the latter that the lock was
open.

Petitioner found that a folder containing certain exhibits, transcripts and private documents for
his case (yung for trial) were missing, aside from two gift items for his parents-in-law.
 Meanwhile, petitioner asked for postponement of the hearing of the civil case due to the said loss
of his documents.

August 28, 1967 Petitioner returned to Cebu. He demanded that his luggage be produced intact, and that he be
compensated P250k for actual and moral damages.

Sept. 13, 1967 Petitioner filed a complaint against PAL for damages of breach of contract of carriage.

CFI – found PAL to have acted in bad faith and with malice; petitioner is entitiled to P80k moral damages and P30k
exemplary damages.

CA – found PAL guilty of SIMPLE NEGLIGENCE ONLY, reversed CFI; ordered PAL to pay Ong Yiu P100, the baggage liability
assumed by it under the condition of carriage printed at the back of the ticket.

Issue/s:

1. WON there was gross negligence on the part of PAL . (NO)

2. WON Ong Yiu is entitled to moral and exemplary damages. (NO)

3. WON PAL should pay P100 only to compensate Ong Yiu. (YES)

Ratio:

No – There was NO gross negligence on the part of PAL.

 Bad faith means a breach of a known duty through some motive of interest or ill will.

o It was PAL’s duty to look for petitioner’s luggage which had been done. PAL exerted due diligence in
complying with such duty.

o SC agreed with CA’s finding that no bad faith on PAL’s part because:

 PAL Butuan communicated the loss to PAL Cebu in less than an hour after Ong Yiu’s luggage
cannot be located.

 Cebu also immediately relayed the information to PAL Manila.

 Upon discovery that the luggage was overcarried to Manila, it was sent bag to Cebu in the
afternoon of the same day.

Yes – Petitioner is not entitled to moral and exemplary damages, but is entitled to P100

 In absence of a wrongful act or ommission or of fraud or bad faith, petitioner is not entitled to moral damages.

 Petitioner is neither entitiled to exemplary damages.

 In contracts, as provided for in Article 2232 of the Civil Code, exemplary damages can be granted if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, which has not been
proven in this case.

Yes – PAL should pay Ong Yiu P100.

Petitioner’s Argument:

Petitioner contends that respondent Court committed grave error when it limited PAL’s carriage liability to the amount
of P100.00 as stipulated at the back of the ticket. In this connection, respondent Court opined:

Ratio:
  SC agreed with CA that:

“As a general proposition, the plaintiff’s maleta having been pilfered while in the custody of the defendant, it is
presumed that the defendant had been negligent. The liability, however, of PAL for the loss, in accordance with the
stipulation written on the back of the ticket, is limited to P100.00 per baggage plaintiff not having declared a greater
value, and not having called the attention of the defendant on its true value and paid the tariff therefor. The validity of
this stipulation is not questioned by the plaintiff. They are printed in reasonably and fairly big letters, and are easily
readable. Moreover, plaintiff had been a frequent passenger of PAL from Cebu to Butuan City and back, and he, being a
lawyer and businessman, must be fully aware of these conditions.”

o The pertinent Condition of Carriage printed at the back of the plane ticket reads:

“8. BAGGAGE LIABILITY . . . The total liability of the Carrier for lost or damaged baggage of the passenger is LIMITED TO
P100.00 for each ticket unless a passenger declares a higher valuation in excess of P100.00, but not in excess, however,
of a total valuation of P 1,000.00 and additional charges are paid pursuant to Carrier’s tariffs.”

o Petitioner did not declare any higher value for his luggage, much less did he pay any additional
transportation charge.

o While it may be true that petitioner had not signed the plane ticket, he is nevertheless bound by the
provisions thereof. The provision is valid and binding regardless of Ong Yiu’s lack of knowledge or
assent.

 It is a contract of “adhesion”. Contracts of adhesion where one party imposes a ready made form of contract on
the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to
the contract is in reality free to reject it entirely; if he adheres, he gives his consent. A contract limiting liability
upon an agreed valuation does not offend against the policy of the law forbidding one from contracting against
his own negligence.”

o Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be
permitted a recovery in excess of P100.00.

WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment sought to be reviewed hereby
affirmed in toto.
Telengtan Brothers & Sons, Inc. v. Court of Appeals

GR No. 110581, 21 September 1994

FACTS:

 Private respondent Kawasaki Kishen Kaisha, Ltd. (K-Line) is a foreign shipping company doing business in the PH,
its shipping agent being respondent the Smith & Bell Co., Inc. It is a member of the Far East Conference, the
body which fixes rates by agreement of its member-shipowners. The conference is registered with the U.S.
Federal Maritime Commission.

 On 8 May 1979, the Van Reekum Paper, Inc. entered into a contract of affreightment with the K-Line for the
shipment of 468 rolls of container board liners from Savannah, Georgia to Manila. The shipment was consigned
to herein petitioner La Suerte Cigar & Cigarette Factory. The contract of affreightment was embodied in Bill of
Lading No. 602 issued by the carrier to the shipper. The expenses of loading and unloading were for the account
of the consignee.

 The shipment was packed in 12 container vans and loaded on board the carrier’s vessel, SS Verrazano Bridge.
Thereafter, in Tokyo, Japan, the cargo was transhipped on two vessels of the K-Line. Ten container vans were
loaded on the SS Far East Friendship, while two were loaded on the SS Hangang Glory.

 Shortly thereafter, the consignee (herein petitioner) received from the shipper photocopies of the bill of lading,
consular invoice and packing list, as well as notice of the estimated time of arrival of the cargo.

 On June 11, 1979, the SS Far East Friendship arrived at the port of Manila. Aside from the regular
advertisements in the shipping section of the Bulletin Today announcing the arrival of its vessels, petitioner was
notified in writing of the ship’s arrival, together with information that container demurrage at the rate of P4.00
per linear foot per day for the first 5 days and P8.00 per linear foot per day after the 5th day would be charged
unless the consignee took delivery of the cargo within ten days.

 On June 21, 1979, the other vessel SS Hangang Glory, carrying petitioner’s two other vans, arrived and was
discharged of its contents the next day. On the same day the shipping agent Smith, Bell & Co. released the
Delivery Permit for twelve (12) containers to the broker upon payment of freight charges on the bill of lading.

 The next day, June 22, 1979, the Island Brokerage Co. presented, in behalf of petitioner, the shipping documents
to the Customs Marine Division of the Bureau of Customs. But the latter refused to act on them because the
manifest of the SS Far East Friendship covered only 10 containers, whereas the bill of lading covered 12
containers.

 The broker, therefore, sent back the manifest to the shipping agent with the request that the manifest be
amended. Smith, Bell & Co. refused on the ground that an amendment, as requested, would violate § 1005 of
the Tariff and Customs Code relating to unmanifested cargo. Later, however, it agreed to add a footnote reading
“Two container vans carried by the SS Hangang Glory to complete the shipment of twelve containers under the
bill of lading.”

 On June 29, 1979 the manifest was picked up from the office of respondent shipping agent by an employee of
the IBC and filed with the Bureau of Customs. The manifest was approved for release on July 3, 1979. IBC wrote
Smith, Bell & Co. to make of record that entry of the shipment had been delayed by the error in the manifest.

 On July 11, 1979, when the IBC tried to secure the release of the cargo, it was informed by private respondents’
collection agent, the CBCS Guaranteed Fast Collection Services, that the free time for removing the containers
 from the container yard had expired on June 26, 1979, in the case of the SS Far East Friendship, and on July 9, in
the case of the SS Hangang Glory, and that demurrage charges had begun to run on June 27, 1979 with respect
to the 10 containers on the SS Far East Friendship and on July 10, 1979 with respect to the 2 containers shipped
on board the SS Hangang Glory.

 On July 13, 1979, petitioner paid P47,680.00 representing the total demurrage charges on all the containers, but
it was not able to obtain its goods. On July 16, 1979 it was able to obtain the release of two containers and on
July 17, 1979 of one more container. It was able to obtain only a partial release of the cargo because of the
breakdown of the arrastre’s equipment at the container yard.

 This matter was reported by IBC in letters of complaint sent to the Philippine Ports Authority. In addition, on July
16, 1979, petitioner sent a letter dated July 12, 1979 to Smith, Bell & Co., requesting reconsideration of the
demurrage charges, on the ground that the delay in claiming the goods was due to the alleged late arrival of the
shipping documents, the delay caused by the amendment of the manifest, and the fact that two of the
containers arrived separately from the other ten containers.

 On July 19, 1979 petitioner paid additional charges in the amount of P20,160.00 for the period July 14-19, 1979
to secure the release of its cargo, but still petitioner was unable to get any cargo from the remaining nine
container vans. It was only the next day, July 20, 1979, that it was able to have two more containers released
from the container yard, bringing to five the total number of containers whose contents had been delivered to
it.

 Subsequently, petitioner refused to pay any more demurrage charges on the ground that there was no
agreement for their payment in the bill of lading and that the delay in the release of the cargo was not due to its
fault but to the breakdown of the equipment at the container yard. In all, petitioner had paid demurrage
charges from June 27 to July 19, 1979 in the total amount of P67,840.00.

 On July 20, 1979 petitioner wrote private respondent for a refund of the demurrage charges, but private
respondent replied on July 25, 1979 that, as member of the Far East Conference, it could not modify the rules or
authorize refunds of the stipulated tariffs.

 Petitioner, therefore, filed this suit in the RTC for specific performance to compel private respondent carrier,
through its shipping agent, the Smith, Bell & Co., to release 7 container vans consigned to it free of charge and
for a refund of P67,840.00 which it had paid, plus attorney’s fees and other expenses of litigation. Petitioner also
asked for the issuance of a writ of preliminary injunction to restrain private respondents from charging
additional demurrage.

 In their amended answer, private respondents claimed that collection of container charges was authorized by §§
2, 23 and 29 of the bill of lading and that they were not free to waive these charges because under the United
States Shipping Act of 1916 it was unlawful for any common carrier engaged in transportation involving the
foreign commerce of the United States to charge or collect a greater or lesser compensation than the rates and
charges specified in its tariffs on file with the Federal Maritime Commission.

 Private respondents alleged that petitioner knew that the contract of carriage was subject to the Far East
Conference rules and that the publication of the notice of reimposition of container demurrage charges
published in the shipping section of the Bulletin Today and Businessday newspapers from February 19-February
25, 1979 was binding upon petitioner. They contended further that the collection of container demurrage was
an international practice which is widely accepted in ports all over the world and that it was in conformity with
Republic Act No. 1407, otherwise known as the Philippine Overseas Shipping Act of 1955.

 Thereafter, a writ was issued after petitioner had posted a bond of P50,000.00 and the container vans were
released to the petitioner. On March 19, 1986, however, the RTC dismissed petitioner’s complaint. RTC cited the
bill of lading which provided:
 o 23. The ocean carrier shall have a lien on the goods, which shall survive delivery, for all freight, dead
freight, demurrage, damages, loss, charges, expenses and any other sums whatsoever payable or
chargeable to or for the account of the Merchant under this bill of lading. . .

o 29 . . . The terms of the ocean carrier’s applicable tariff, including tariffs covering intermodal
transportation on file with the Federal Maritime Commission and the Interstate Commission or any
other regulatory body which governs a portion of the carriage of goods, are incorporated herein.

 RTC held that the bill of lading was the contract between the parties and, therefore, petitioner was liable for
demurrage charges. It rejected petitioner’s claim of force majeure.

 CA affirmed the decision of the RTC. Hence, this petition.

ISSUE + RATIO

Whether petitioner is entitled to a refund of the demurrage charges it paid. YES, but partial refund only.

 Our decision will be presently explained, but in brief it is this: petitioner is liable for demurrage for delay in
removing its cargo from the containers but only for the period July 3 to 13, 1979 with respect to ten containers
and from July 10 to July 13, 1979, in respect of two other containers.

 First. With respect to petitioner’s liability for demurrage, petitioner’s contention is that the bill of lading does
not provide for the payment of container demurrage, as Clause 23 of the bill of lading only says “demurrage,”
i.e., damages for the detention of vessels, and here there is no detention of vessels.

 Petitioner invokes the ruling in Magellan Manufacturing Marketing Corp. v. Court of Appeals, where we defined
“demurrage” as follows:

o Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for the
detention of the vessel beyond the time agreed on for loading and unloading. Essentially, demurrage is
the claim for damages for failure to accept delivery. In a broad sense, every improper detention of a
vessel may be considered a demurrage. Liability for demurrage, using the word in its strictly technical
sense, exists only when expressly stipulated in the contract. Using the term in [its broader sense,
damages in the] nature of demurrage are recoverable for a breach of the implied obligation to load or
unload the cargo with reasonable dispatch, but only by the party to whom the duty is owed and only
against one who is a party to the shipping contract.

 Whatever may be the merit of petitioner’s contention as to the meaning of the word “demurrage” in clause 23
of the bill of lading, the fact is that clause 29(a) also of the bill of lading, in relation to Rule 21 of the Far East
Conference Tariff No. 28-FMC No. 12, as quoted above, specifically provides for the payment by the consignee of
demurrage for the detention of containers and other equipment after the so-called “free time.”

 Now a bill of lading is both a receipt and a contract. As a contract, its terms and conditions are conclusive on the
parties, including the consignee.

 As the Court of Appeals pointed out in its appealed decision, the enforcement of the rules of the Far East
Conference and the Federal Maritime Commission is in accordance with Republic Act No. 1407, § 1 of which
declares that the Philippines, in common with other maritime nations, recognizes the international character of
shipping in foreign trade and existing international practices in maritime transportation and that it is part of the
national policy to cooperate with other friendly nations in the maintenance and improvement of such practices.
 Petitioner’s argument that it is not bound by the bill of lading issued by K-Line because it is a contract of
adhesion, whose terms as set forth at the back are in small prints and are hardly readable, is without merit.

 Second. With respect to the period of petitioner’s liability, private respondents’ position is that the “free time”
expired on June 26, 1979 and demurrage began to toll on June 27, 1979, with respect to 10 containers which
were unloaded from the SS Far East Friendship, while with respect to the 2 containers which were unloaded
from the SS Hangang Glory, the free time expired on July 9, 1979 and demurrage began to run on July 10, 1979.

 This contention is without merit. Petitioner cannot be held liable for demurrage starting June 27, 1979 on the 10
containers which arrived on the SS Far East Friendship because the delay in obtaining release of the goods was
not due to its fault. The evidence shows that because the manifest issued by the respondent K-Line, through the
Smith, Bell & Co., stated only 10 containers, whereas the bill of lading also issued by the K- Line showed there
were 12 containers, the Bureau of Customs refused to give an entry permit to petitioner. For this reason,
petitioner’s broker, the IBC, had to see the respondents’ agent (Smith, Bell & Co.) on June 22, 1979 but the latter
did not immediately do something to correct the manifest. Smith, Bell & Co. was asked to “amend” the
manifest, but it refused to do so on the ground that this would violate the law. It was only on June 29, 1979 that
it thought of adding instead a footnote to indicate that two other container vans- to account for a total of 12
container vans consigned to petitioner had been loaded on the other vessel SS Hangang Glory.

 The period of delay, however, for all the 12 containers must be deemed to have stopped on July 13, 1979,
because on this date petitioner paid P47,680.00. If it was not able to get its cargo from the container vans, it was
because of the breakdown the cranes of the arrastre service operator. It would be unjust to charge demurrage
after July 13, 1979 since the delay in emptying the containers was not due to the fault of the petitioner.

 Indeed, there is no reason why petitioner should not get its cargo after paying all demurrage charges due on July
13, 1979. If it paid P20,180.00 more in demurrage charges after July 13, 1979 it was only because respondents
would not release the goods. Even then petitioner was able to obtain the release of cargo from five container
vans. Its trucks were unable to load anymore cargo and returned to petitioner’s premises empty.

 In sum, we hold that petitioner can be held liable for demurrage only for the period July 3-13, 1979 and that in
accordance with the stipulation in its bill of lading, it is liable for demurrage only in the amount of P28,480.00.
Given that there is an overpayment of P39,360.00, this should be refunded to the petitioner.
AYALA INC VS. RAY BURTON CORP

GR No. 163075

January 23, 2006

FACTS: On December 22, 1995, Ayala Inc. and Ray Burton Corp. entered into a contract denominated as a “Contract to
Sell,” with a “Side Agreement” of even date. In these contracts, petitioner agreed to sell to respondent a parcel of land
situated at Muntinlupa City. The purchase price of the land is payable as follows:

On contract date: 26%, inclusive of option money

Not later than 1-6-96: 4%

In consecutive quarterly installments for a period of 5 years: 70%

Respondent paid thirty (30%) down payment and the quarterly amortization. However in 1998, respondent notified
petitioner in writing that it will no longer continue to pay due to the adverse effects of the economic crisis to its
business. Respondent then asked for the immediate cancellation of the contract and for a refund of its previous
payments as provided in the contract.

Petitioner refused to cancel the contract to sell. Instead, it filed with the RTC Makati City, a complaint for specific
performance against respondent, demanding from the latter the payment of the remaining unpaid quarterly
installments inclusive of interest and penalties.

Respondent, in its answer, denied any further obligation to petitioner, asserting that it (respondent) notified the latter of
its inability to pay the remaining installments. Respondent invoked the provisions of paragraphs 3 and 3.1 of the
contract to sell providing for the refund to it of the amounts paid, less interest and the sum of 25% of all sums paid as
liquidated damages.

The trial court rendered a Decision in favor of Ayala and holding that respondent transgressed the law in obvious bad
faith. It ordered the defendant ordered to pay Ayala the unpaid balance, interest agreed upon, and penalties. Defendant
is further ordered to pay plaintiff for attorney’s fees and the costs of suit. Upon full payment of the aforementioned
amounts by defendant, plaintiff shall, as it is hereby ordered, execute the appropriate deed of absolute sale conveying
and transferring full title and ownership of the parcel of land subject of the sale to and in favor of defendant.

On appeal, the CA rendered a Decision reversing the trial court’s Decision. Hence, the instant petition for review on
certiorari.

ISSUE:

1. WON respondent’s non-payment of the balance of the purchase price gave rise to a cause of action on the part of
petitioner to demand full payment of the purchase price; and

2. WON Ayala should refund respondent the amount the latter paid under the contract to sell.

HELD: The petition is denied. The CA decision is affirmed.

At the outset, it is significant to note that petitioner does not dispute that its December 22, 1995 transaction with
respondent is a contract to sell. Also, the questioned agreement clearly indicates that it is a contract to sell, not a
contract of sale. Paragraph 4 of the contract provides:

4. TITLE AND OWNERSHIP OF THE PROPERTY. – The title to the property shall transfer to the PURCHASER upon payment
of the balance of the Purchase Price and all expenses, penalties and other costs which shall be due and payable
hereunder or which may have accrued thereto. Thereupon, the SELLER shall execute a Deed of Absolute Sale in favor of
the PURCHASER conveying all the SELLER’S rights, title and interest in and to the Property to the PURCHASER
1. NO. Considering that the parties’ transaction is a contract to sell, can petitioner, as seller, demand specific
performance from respondent, as buyer?

Black’s Law Dictionary defined specific performance as “(t)he remedy of requiring exact performance of a contract in the
specific form in which it was made, or according to the precise terms agreed upon. The actual accomplishment of a
contract by a party bound to fulfill it.”

Evidently, before the remedy of specific performance may be availed of, there must be a breach of the contract.

Under a contract to sell, the title of the thing to be sold is retained by the seller until the purchaser makes full
payment of the agreed purchase price. The non-fulfillment by the respondent of his obligation to pay, which is a
suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the
contract to sell ineffective and without force and effect; failure of which is not really a breach, serious or otherwise, but
an event that prevents the obligation of the petitioners to convey title from arising, in accordance with Article 1184 of
the Civil Code .

The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code will not apply
because it presupposes an obligation already extant. There can be no rescission of an obligation that is still non-existing,
the suspensive condition not having happened Thus, a cause of action for specific performance does not arise.

Here, the provisions of the contract to sell categorically indicate that respondent’s default in the payment of the
purchase price is considered merely as an “event,” the happening of which gives rise to the respective obligations of the
parties mentioned therein, thus:

3. EVENT OF DEFAULT. The following event shall constitute an Event of Default under this contract: the PURCHASER fails
to pay any installment on the balance, for any reason not attributable to the SELLER, on the date it is due, provided,
however, that the SELLER shall have the right to charge the PURCHASER a late penalty interest on the said unpaid
interest at the rate of 2% per month computed from the date the amount became due and payable until full payment
thereof.

3.1. If the Event of Default shall have occurred, then at any time thereafter, if any such event shall then be continuing for
a period of six (6) months, the SELLER shall have the right to cancel this Contract without need of court declaration to
that effect by giving the PURCHASER a written notice of cancellation sent to the address of the PURCHASER as specified
herein by registered mail or personal delivery. Thereafter, the SELLER shall return to the PURCHASER the aggregate
amount that the SELLER shall have received as of the cancellation of this Contract, less: (i) penalties accrued as of the
date of such cancellation, (ii) an amount equivalent to twenty five percent (25%) of the total amount paid as liquidated
damages, and (iii) any unpaid charges and dues on the Property. Any amount to be refunded to the PURCHASER shall be
collected by the PURCHASER at the office of the SELLER. Upon notice to the PURCHASER of such cancellation, the SELLER
shall be free to dispose of the Property covered hereby as if this Contract had not been executed. Notice to the
PURCHASER sent by registered mail or by personal delivery to its address stated in this Contract shall be considered as
sufficient compliance with all requirements of notice for purposes of this Contract. 14

Therefore, in the event of respondent’s default in payment, petitioner, under the above provisions of the contract, has
the right to retain an amount equivalent to 25% of the total payments. As stated by the CA, petitioner having been
informed in writing by respondent of its intention not to proceed with the contract prior to incurring delay in payment of
succeeding installments, the provisions in the contract relative to penalties and interest find no application.

2. YES. The CA is correct that with respect to the award of interest, petitioner is liable to pay interest of 12% per
annum upon the net refundable amount due from the time respondent made the extrajudicial demand upon it to refund
payment under the Contract to Sell, pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.

NOTES:
1. The real nature of a contract may be determined from the express terms of the written agreement and from the
contemporaneous and subsequent acts of the contracting parties. In the construction or interpretation of an instrument,
the intention of the parties is primordial and is to be pursued. 5 If the terms of the contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulations shall control. 6 If the words appear to
be contrary to the evident intention of the parties, the latter shall prevail over the former. 7 The denomination or title
given by the parties in their contract is not conclusive of the nature of its contents.

2. Lim v. Court of Appeals (182 SCRA 564 [1990]) is most illuminating. In the said case, a contract to sell and a contract of
sale were clearly and thoroughly distinguished from each other.

CONTRACT TO SELL

– the ownership is reserved in the seller and is not to pass until the full payment of the purchase price is made

– full payment is a positive suspensive condition.

– the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at
the time specified in the contract

CONTRACT OF SALE

– the title passes to the buyer upon the delivery of the thing sold

– non-payment of the price is a negative resolutory condition

vendor has lost and cannot recover the ownership of the property until and unless the contract of sale is itself resolved
and set aside
PRIL – Overseas Employment Contract – 95

Suzara vs Benipayo (1989)

Facts:

1. Suzara et al entered into employment contracts with Magsaysay lines to work aboard vessels
owned/operated/manned by the latter for a period of 12 calendar months and with different rating/position,
salary, overtime pay and allowance. The contracts were approved by the National Seamen Board.

2. Upon arrival at the port of Vancouver, Canada, demands for increase in wages were made through the help of
the International Transport Worker’s Federation (ITF), a militant worldwide especially in Canada, Australia,
Scandinavia, and various European countries, interdicting foreign vessels and demanding wage increases for
third world seamen.

3. Wages were increased but complaints were filed by Magsaysay before the NSB. NSB ordered the return of the
additional wages paid for being obtained thru violent means and for lacking NSB approval. NLRC affirmed the
order.

4. Meanwhile, Magsaysay filed estafa charges against the seamen.

5. In this petition, the seamen seeks for the reversal of the NLRC decision and the quashal of the complaints for
estafa.

Issue:

Whether the increase in wages needed the approval of the NSB to be legal (NO)

Ratio:

1. There is nothing in the record supporting the finding that the workers resorted to violent means to obtain an
increase in their wages.

2. It is impractical for the NSB to require the petitioners, caught in the middle of a labor struggle between the ITF
and owners of ocean going vessels halfway around the world in Vancouver, British Columbia to first secure the
approval of the NSB in Manila before signing an agreement which the employer was willing to sign

3. Accdg to the case of Vir-Jen: The form contracts approved by the National Seamen Board are designed to
protect Filipino seamen not foreign shipowners who can take care of themselves. The standard forms embody
the basic minimums which must be incorporated as parts of the employment contract. (Section 15, Rule V, Rules
and Regulations Implementing the Labor Code).lâwphî1.ñèt They are not collective bargaining agreements or
immutable contracts which the parties cannot improve upon or modify in the course of the agreed period of
time

4. The NSB, the Department of Labor and Employment and all its agencies exist primarily for the workingman's
interest and the nation's as a whole.