ARBITRATION CASES: 2. Intl harvester vs.

hamburg-american line
G.R. No. L-11515 July 29, 1918
1. Wahl vs. DONALDSON, SIMS & CO. Street, J.:
G.R. No 1085 May 16, 1903
Cooper, J.: FACTS:

FACTS:
The parties entered into a lease agreement involving a ship called Petrarch. For Donaldson’s
indebtedness under the contract, Wahl filed a case and won through default. In the new trial,
Donaldson filed a demurrer questioning the court’s competency to try the case, contending that
their contract contains the following provision:
"If there should arise any difference of opinion between the parties to this contract, whether it
may be with reference to the principal matter or in any detail, this difference shall be
referred for arbitration to two competent persons in Hongkong, one of which shall be
selected by each of the contracting parties, with the power to call in a third party in the event of
a disagreement; the majority of the opinions will be final and obligatory to the end of compelling
any payment. This award may be made a rule of the court."
Before Hamburg-American Line was able to deliver International Harvester’s cargo to Russia,
war broke out in Europe and since the vessel was of German registry, it had to take refuge in
the nearest neutral port which happened to be Manila. As International Harvester saw that the
vessel will stay there indefinitely, it demanded the return of its cargo through another vessel.
Demand being futile, it filed an action before CFI Manila for the recovery of possession of the
cargo.
Hamburg-American Airline now contends that the dispute should have been tried exclusively
by the Hamburg courts and according to German law, as stated in the bill of lading.
ISSUE:
W/N CFI has jurisdiction to try the case despite such provision in the bill of lading

ISSUE: RULING:YES.

W/N such a provision is valid
RULING: NO (contrary to public policy)
A condition in a contract that disputes arising out of it shall be referred to arbitration is good
where the amount of damages sustained by a breach of the contract is to be ascertained by
specified arbitration before any right of action arises, but that it is illegal where all the
matters in dispute of whatever sort may be referred to arbitrators and to them alone. In
the first case a condition precedent to the accruing of a right of action is imposed, while in the
second it is attempted to prevent any right of action accruing at all, and this can not be
permitted.
It can not be admitted that a provision of this character has the effect of ousting the jurisdiction
of the court of the Philippine Islands in the matter now before it. An express agreement tending
to deprive a court of jurisdiction conferred on it by law is of no effect. (Molina vs. De la Riva, 6
Phil., 12.) Besides, whatever the effect of this provision, the benefit of it was waived when the
defendant company appeared and answered generally without objecting to the jurisdiction of
the court.
As regards the contention that the rights of the parties should be determined in accordance
with the law of Germany, it is sufficient to say that when it is proposed to invoke the law of a
foreign country as supplying the proper rules for the solution of a case, the existence of such
law must be pleaded and proved. Defendant has done neither. In such a case it is to be
presumed that the law prevailing in the foreign country is the same as that which prevails in our
own.
3. TEODORO VEGA VS. THE SAN CARLOS MILLING CO., LTD. ISSUE:
G.R. No. L-21549 October 22, 1924
W/N the validity of stipulations on arbitration constitute a bar to judicial action (condition
ROMUALDEZ, J.:
precedent)
FACTS:
RULING:NO.
Teodoro Vega filed an action for recovery of 32,959 kilos of centrifugal sugar, or its value,
P6,252, plus damages and the costs. The milling company filed an answer with a It cannot be held that in agreeing on this point, the parties proposed to establish the arbitration
counterclaim. as a condition precedent to judicial action, because these clauses quoted do not create such a
condition either expressly or by necessary inference.
CFI ruled that Vega must be held to have a better right to the possession of the 32,959 kilos of
centrifugal sugar manufactured in the defendants' central and the latter is sentenced to deliver The question whether submission to arbitration is a condition precedent to a suit upon the
contract depends upon the language employed in each particular stipulation. Where by the
them to the plaintiff, and in default, the selling price thereof.
same agreement which creates the liability, the ascertainment of certain facts by arbitrators is
The milling company appealed, alleging, among others, that CFI erred in having held itself with expressly made a condition precedent to a right of action thereon, suit cannot be brought until
jurisdiction to take cognizance of and render judgment in the cause. the award is made. But the courts generally will not construe an arbitration clause as ousting
them of their jurisdiction unless such construction is inevitable, and consequently when the
SUBJECT MATTER: clause 23 of the Mill's covenants and clause 14 of the Planter's arbitration clause is not made a condition precedent by express words or necessary
Covenant as they appear in Exhibit A implication, it will be construed as merely collateral to the liability clause, and so no bar to an
23. That it (the Mill — Party of the first part) will submit and all differences that may arise action in the courts without an award.
between the Mill and the Planters to the decision of arbitrators, two of whom shall be chosen
by the Mill and two by the Planters, who in case of inability to agree shall select a fifth
arbitrator, and to respect and abide by the decision of said arbitrators, or any three of them, as
the case may be.

xxx xxx xxx

14. That they (the Planters--Parties of the second part) will submit any and all differences that
may arise between the parties of the first part and the parties of the second part of the decision
of arbitrators, two of whom shall be chosen by the said parties of the first part and two by the
said party of the second part, who in case of inability to agree, shall select a fifth arbitrator, and
will respect and abide by the decision of said arbitrators, or any three of them, as the case may
be.
4. NAT’L UNION VS. STOLT-NIELSEN PHILIPPINES, INC.
G.R. No. 87958 April 26, 1990
MELENCIO-HERRERA, J.:
FACTS:
In 1985, United Coconut Chemicals, Inc. (SHIPPER) shipped distilled fatty acid on board a
tanker owned by Stolt-Nielsen (CARRIER) from Batangas to Netherlands, covered by a Tanker
Bill of Lading. The shipment was insured under a marine cargo policy w/ National Union Fire
Insurance Company of Pittsburg (INSURER-American).
It appears that the BoL issued by the CARRIER contained a general statement of incorporation
of terms of a charter party between the SHIPPER and Parcel Tankers, Inc.
Upon receipt by the CONSIGNEE, the shipment was found to be discolored and totally
contaminated. The SHIPPER’s claim having been denied by the CARRIER, the INSURER
indemnified the SHIPPER and later filed a case against the CARRIER as the SHIPPER’S
SUBROGEE. The CARRIER moved to dismiss/suspend the proceedings for the RTC’s lack of
jurisdiction over the claim, the same being an arbitrable one. The INSURER insisted that it is
not bound to submit the claim to arbitration as the arbitration clause in the charter party was
not incorporated in the BoL. RTC granted the motion. CA referred the parties to arbitration.
SUBJECT MATTER:
A. BoL
x x x all the terms whatsoever of the said Charter except the rate and payment of
freight specified therein apply to and govern the rights of the parties concerned in this
shipment. x x x
B. Charter Party
4. Arbitration. Any dispute arising from the making, performance or termination of this Charter
Party shall be settled in New York, Owner and Charterer each appointing an arbitrator, who
shall be a merchant, broker or individual experienced in the shipping business; the two thus
chosen, if they cannot agree, shall nominate a third arbitrator who shall be an admiralty lawyer.
Such arbitration shall be conducted in conformity with the provisions and procedure of the
United States arbitration act, and a judgment of the court shall be entered upon any award
made by said arbitrator. Nothing in this clause shall be deemed to waive Owner's right to lien
on the cargo for freight, deed of freight, or demurrage.
ISSUE:
W/N the terms of the Charter Party, particularly the provision on arbitration, binding on the
INSURER
RULING:YES
Clearly, the Bill of Lading incorporates by reference the terms of the Charter Party. It is settled
law that the charter may be made part of the contract under which the goods are carried by an
appropriate reference in the Bill of Lading. This should include the provision on arbitration even
without a specific stipulation to that effect. The entire contract must be read together and its
clauses interpreted in relation to one another and not by parts.
The Bill of Lading becomes, therefore, only a receipt and not the contract of carriage in a
charter of the entire vessel, for the contract is the Charter Party, and is the law between the
parties who are bound by its terms and condition provided that these are not contrary to law,
morals, good customs, public order and public policy.
The INSURER "cannot feign ignorance of the arbitration clause since it was already charged
with notice of the existence of the charter party due to an appropriate reference thereof in the
bill of lading and, by the exercise of ordinary diligence, it could have easily obtained a copy
thereof either from the shipper or the charterer.
By subrogation, it became privy to the Charter Party as fully as the SHIPPER before the latter
was indemnified, because as subrogee it stepped into the shoes of the SHIPPER-ASSURED
and is subrogated merely to the latter's rights. It can recover only the amount that is
recoverable by the assured.
Stated otherwise, as the subrogee of the SHIPPER, the INSURER is contractually bound by
the terms of the Charter party. Any claim of inconvenience or additional expense on its part
should not render the arbitration clause unenforceable.
Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted
in our jurisdiction (Chapter 2, Title XIV, Book IV, Civil Code). Republic Act No. 876 (The
Arbitration Law) also expressly authorizes arbitration of domestic disputes. Foreign arbitration
as a system of settling commercial disputes of an international character was likewise
recognized when the Philippines adhered to the United Nations "Convention on the
Recognition and the Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965
Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing
enforcement of international arbitration agreements between parties of different nationalities
within a contracting state.

Thus, it pertinently provides:

1. Each Contracting State shall recognize an agreement in writing under which the
parties undertake to submit to arbitration all or any differences which have arisen or
which may arise between them in respect of a defined legal relationship, whether
contractual or not, concerning a subject matter capable of settlement by arbitration.

2. The term "agreement in writing" shall include an arbitral clause in a contract or an

arbitration agreement, signed by the parties or contained in an exchange of letters or
telegrams.

3. The court of a Contracting State, when seized of an action in a matter in respect of

which the parties have made an agreement within the meaning of this article, shall, at
the request of one of the parties, refer the parties to arbitration, unless it finds that the
said agreement is null and void, inoperative or incapable of being performed.
5. PUROMINES, INC. VS. CA & PHILIPP BROS. OCEANIC Since there obtains herein a written provision for arbitration as well as failure on respondent's
G.R. No. 91228 March 22, 1993 part to comply therewith, the court a quo rightly ordered the parties to proceed to their
NOCON, J.: arbitration in accordance with the terms of their agreement

FACTS:

Puromines & Makati Agro (not a party to the case) entered into a contract with Philipp Bros. for
the sale of prilled Urea in bulk. The Sales Contract contained an arbitration clause stating that
any dispute arising under the contract shall be settled by arbitration in London in accordance
with the Arbitration Act 1950 and any statutory amendment or modification thereof. Shipments
were made to the Philippines, as covered by three bills of lading issued by Maritime Factors.
However, one of the shipments were discharged in bad order and condition caked, hardened
and lumpy, discolored and contaminated with rust and dirt.

For this, Puromines filed a complaint for breach of contract of carriage against Maritime
Factors and Philipp Bros. The latter filed a motion to dismiss on the ground that the complaint
states no cause of action and is prematurely filed for failure to submit first to arbitration.
Puromines opposed as as the cause of action did not arise from a violation of the terms of the
sales contract but rather for claims of cargo damages where there is no arbitration agreement.

(Any disputes arising under this contract shall be settled by arbitration…)

ISSUE:

W/N the claim should have been submitted to arbitration

RULING: YES

The sales contract is broad enough to include the claim for damages arising from the carriage
and delivery of the goods subject-matter thereof.

Arbitration has been held valid and constitutional. Even before the enactment of Republic Act
No. 876, this Court has countenanced the settlement of disputes through arbitration. The rule
now is that unless the agreement is such as absolutely to close the doors of the courts against
the parties, which agreement would be void, the courts will look with favor upon such amicable
arrangements and will only interfere with great reluctance to anticipate or nullify the action of
the arbitrator.
AIRLINE CASES: Transportation to be performed by several successive air carriers shall be deemed, for the
purposes of this Convention, to be one undivided transportation, if it has been regarded by the
1. China Airlines v. Daniel Chiok parties as a single operation, whether it has been agreed upon under the form of a single
G.R. No. 152122. July 30, 2003 contract or of a series of contracts, and it shall not lose its international character merely
Panganiban, J.: because one contract or a series of contracts is to be performed entirely within a territory
FACTS: subject to the sovereignty, suzerainty, mandate, or authority of the same High Contracting
Party.
Daniel Chiok purchased from CAL an airline passenger ticket (Manila-Taipei-Hongkong-
Manila) which is exclusively endorseable to PAL. When in Hongkong, his flight back to Manila Article 15 of IATA-Recommended Practice similarly provides:
was cancelled due to a typhoon. ALL confirmed ticket holders were automatically booked for Carriage to be performed by several successive carriers under one ticket, or under a ticket and
the next flight to leave the next day. He informed PAL that being the founding director of the any conjunction ticket issued therewith, is regarded as a single operation.
Philippine Polysterene Paper Corporation, he had to reach Manila the next day due to a
business option he had to execute.

On the scheduled flight date, his name, however, was not in the computer list. He likewise lost
his new Samsonite luggage and a clutch bag which contained cosmetics, money, and other
valuable things.

For these, he filed a complaint for damages against PAL and CAL.RTC held them jointly and
severally liable. CA affirmed.

ISSUE:

W/N CAL, as ticket-issuing carrier, should be held liable

RULING: YES

It is significant to note that the contract of air transportation was between petitioner and
respondent, with the former endorsing to PAL the Hong Kong-to-Manila segment of the
journey. Such contract of carriage has always been treated in this jurisdiction as a single
operation.

The obligation of the ticket-issuing airline remained and did not cease, regardless of the fact
that another airline had undertaken to carry the passengers to one of their destinations.

Article 1, Section 3 of the Warsaw Convention states:

2. KLM ROYAL DUTCH AIRLINES VS. CA
G.R. No. L-31150 July 22, 1975
CASTRO, J.:
FACTS:
Consuelo and Rufino Mendoza intended to make a world tour with their daughter and a niece.
They would fly on different airlines. Three segments of the trip, the longest, would be via KLM.
KLM secured seat reservations for them. For their visit to France, Aer Lingus would service it.
KLM tickets were issued but the coupon for the Aer Lingus portion was marked RQ (on
request). It was later on confirmed. However, in Barcelona, although their daughter and niece
were allowed to take the plane, Sps. Mendoza were off-loaded on orders of the Aer Lingus
manager who brusquely shoved them aside with the aid of a policeman and who shouted at
them, "Conos! Ignorantes Filipinos!"
Sps. Mendoza had to take a train before having to board another plane. Thereafter, they filed a
case for damages arising from breach of contract of carriage against KLM as Aer Lingus’
principal. Trial court ruled in their favor. Both appealed. Sps wanted more, while KLM sought
complete exoneration. KLM refers to the inside front cover of each ticket the following appears
under the heading "Conditions of Contract":
1 ... (a) Liability of carrier for damages shall be limited to occurrences on its own line, except in
the case of checked baggage as to which the passenger also has a right of action against the
first or last carrier. A carrier issuing a ticket or checking baggage for carriage over the lines of
others does so only as agent..
Sps. maintained that KLM should be held liable for its agent’s wilful misconduct.
INVOKED WARSAW CONVENTION PROVISIONS:
A. KLM:
ART. 30. (1) In the case of transportation to be performed by various successive carriers and
failing within the definition set out in the third paragraph of Article I, each carrier who accepts
passengers, baggage, or goods shall be subject to the rules set out in the convention, and
shall be deemed to be one of the contracting parties to the contract of transportation insofar as
the contract deals with that part of transportation which is performed under his supervision.2
(2) In the case of transportation of this nature, the passenger or his representative can take
action only against the carrier who performed the transportation during which the accident or
the delay occured, save in the case where, by express agreement, the first carrier has
assumed liability for the whole journey. (emphasis supplied)
B. SPS:
ART. 25. (1) The carrier shall not be entitled to avail himself of the provisions of this convention
which exclude or limit his liability, if the damage is caused by his willful misconduct or by such
default on his part as, in accordance with the law of the court to which the case is submitted, is
considered to be equivalent to willful misconduct.3
(2) Similarly, the carrier shall not be entitled to avail himself of the said provisions, if the
damage is caused under the same circumstances by any agent of the carrier acting within the
scope of his employment. (emphasis by respondents)
ISSUE:
W/N KLM should be held liable for the tortious act of Aer Lingus’ manager
RULING: YES
As noted by the Court of Appeals that condition was printed in letters so small that one would
have to use a magnifying glass to read the words. Under the circumstances, it would be unfair
and inequitable to charge the respondents with automatic knowledge or notice of the said
condition so as to preclude any doubt that it was fairly and freely agreed upon by the
respondents when they accepted the passage tickets issued to them by the KLM. As the airline
which issued those tickets with the knowledge that the respondents would be flown on the
various legs of their journey by different air carriers, the KLM was chargeable with the duty and
responsibility of specifically informing the respondents of conditions prescribed in their tickets
or, in the very least, to ascertain that the respondents read them before they accepted their
passage tickets. A thorough search of the record, however, inexplicably fails to show that any
effort was exerted by the KLM officials or employees to discharge in a proper manner this
responsibility to the respondents. Consequently, we hold that the respondents cannot be
bound by the provision in question by which KLM unilaterally assumed the role of a mere
ticket-issuing agent for other airlines and limited its liability only to untoward occurrences on its
own lines.

Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets of
the respondents provide that the carriage to be performed thereunder by several successive
carriers "is to be regarded as a single operation."

The breach of that guarantee was aggravated by the discourteous and highly arbitrary conduct
of an official of the Aer Lingus which the KLM had engaged to transport the respondents on the
Barcelona-Lourdes segment of their itinerary. It is but just and in full accord with the policy
expressly embodied in our civil law which enjoins courts to be more vigilant for the protection of
a contracting party who occupies an inferior position with respect to the other contracting party,
that the KLM should be held responsible for the abuse, injury and embarrassment suffered by
the respondents at the hands of a supercilious boor of the Aer Lingus.
3. CATHAY PACIFIC AIRWAYS VS. CA
G.R. No. 60501. March 5, 1993.
BELLOSILLO, J:
FACTS:
Tomas Alcantara was a first class passenger of Cathay on its flight Manila-Hongkong-
Hongkong-Jakarta. He was to attend an exclusive conference with the Director of General
Trade of Indonesia (Executive Vice-President and General Manager of Iligan Cement
Corporation, Chairman of the Export Committee of the Philippine Cement Corporation, and
representative of the Cement Industry Authority and the Philippine Cement Corporation).
He checked in his luggage containing his clothings personal articles, papers and documents for
the conference. Upon arrival in Jakarta, he learned that his luggage was missing. For this, he
was offered $20.00 as "inconvenience money" to buy his immediate personal needs until the
luggage could be delivered to him. His luggage finally reached Jakarta more than twenty four
(24) hours after his arrival. However, it was not delivered to him at his hotel but was required
by petitioner to be picked up by an official of the Philippine Embassy.
Thereafter, he filed a case for temperate, moral and exemplary damages plus attorney’s fees.
Trial court ruled in his favor. Both appealed, he sought full amount of damages, while Cathay
maintained that its liabilities should be limited to the coverage of Warsaw Convention.
ISSUE:
W/N Cathay’s contention as to the extent of its liabilities is correct
RULING: NO.
Duty officer: 'What can we do, the baggage is missing. I cannot do anything.' something like it.
'Anyhow you can buy anything you need, charged to Cathay Pacific.'
Cathay’s representative towards respondent Alcantara was discourteous or arbitrary to justify
the grant of moral damages. The CATHAY representative was not only indifferent and
impatient; he was also rude and insulting. He simply advised Alcantara to buy anything he
wanted. But even that was not sincere because the representative knew that the passenger
was limited only to $20.00 which, certainly, was not enough to purchase comfortable clothings
appropriate for an executive conference.
Where in breaching the contract of carriage the defendant airline is not shown to have acted
fraudulently or in bad faith, liability for damages is limited to the natural and probable
consequences of the breach of obligation which the parties had foreseen or could have
reasonably foreseen. In that case, such liability does not include moral and exemplary
damages. 8 Conversely, if the defendant airline is shown to have acted fraudulently or in bad
faith, the award of moral and exemplary damages is proper.
However, respondent Alcantara is not entitled to temperate damages, contrary to the ruling of
the court a quo, in the absence of any showing that he sustained some pecuniary loss (no
serious or appreciable damages).
Cathay contends that the extent of its liability for breach of contract should be limited absolutely
to that set forth in the Warsaw Convention. We do not agree. As We have repeatedly held,
although the Warsaw Convention has the force and effect of law in this country, being a treaty
commitment assumed by the Philippine government, said convention does not operate as an
exclusive enumeration of the instances for declaring a carrier liable for breach of contract of
carriage or as an absolute limit of the extent of that liability. 10 The Warsaw Convention
declares the carrier liable for damages in the enumerated cases and under certain limitations.
11 However, it must not be construed to preclude the operation of the Civil Code and other
pertinent laws. It does not regulate, much less exempt, the carrier from liability for damages for
violating the rights of its passengers under the contract of carriage, 12 especially if wilfull
misconduct on the part of the carrier's employees is found or established, which is clearly the
case before Us.
4. ALITALIA V. IAC complement should inflict some physical injury on a passenger, or maliciously destroy or
G.R. No. 71929 : December 4, 1990 damage the latter's property, the Convention might successfully be pleaded as the sole gauge
NARVASA, J.: to determine the carrier's liability to the passenger. Neither may the Convention be invoked to
justify the disregard of some extraordinary sort of damage resulting to a passenger and
FACTS: preclude recovery therefor beyond the limits set by said Convention. It is in this sense that the
Dr. Felipa Pablo, an associate professor in UP was invited to a meeting in Italy. For this, she Convention has been applied, or ignored, depending on the peculiar facts presented by each
booked passage on Alitalia. However, her luggage was delayed inasmuch as it was in one of case.
the succeeding flights from Rome to Milan. Her luggage consisted of 2 suitcases: one for In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the
clothing & personal items, the other for her scientific papers and research material. But the employees of petitioner airline; and Dr. Pablo's luggage was eventually returned to her,
other flights arriving from Rome did not have her baggage on board. belatedly, it is true, but without appreciable damage.
She went to Rome to locate the bags herself, but to no avail. Completely distraught and
discouraged, she returned to Manila without attending the meeting in Ispra, Italy. When she
returned in Manila, she demanded Alitalia reparation for the damages. It offered her free tickets
but she declined. It turned out that her suitcases were in fact located and forwarded to Ispra, 7
Italy, but only on the day after her scheduled appearance and participation at the U.N. meeting
there. These were not actually restored to Prof. Pablo by ALITALIA until eleven (11) months
later, and four (4) months after institution of her action.

CFI ruled in her favor. CA affirmed. Alitalia contends that the Warsaw Convention should have
been applied, and hence, should not be held liable.

ISSUE:

W/N Alitalia should still be held liable (despite the absence of bad faith)

RULING: YES

The Convention does not thus operate as an exclusive enumeration of the instances of an
airline's liability, or as an absolute limit of the extent of that liability.

The Convention's provisions, in short, do not "regulate or exclude liability for other breaches of
contract by the carrier" or misconduct of its officers and employees, or for some particular or
exceptional type of damage. Otherwise, "an air carrier would be exempt from any liability for
damages in the event of its absolute refusal, in bad faith, to comply with a contract of carriage,
which is absurd." Nor may it for a moment be supposed that if a member of the aircraft
5. KOREAN AIRLINES V. CA
G.R. No. 114061 August 3, 1994
CRUZ, J:
FACTS:
Juanito C. Lapuz, an automotive electrician, was contracted for employment in Jeddah, Saudi
Arabia, for a period of one year through Pan Pacific Overseas Recruiting Services, Inc. He was
to leave via Korean Airlines. He was initially wait-listed but was later on given a seat, together
with one Perico. However, when he was at the 3rd or 4th rung of the stairs, a KAL officer pointed
to him and shouted "Down! Down!" He was thus barred from taking the flight. He asked for
another booking but KAL cancelled his ticket. He was unable to report for his work in Saudi
Arabia within the stipulated 2-week period and so lost his employment.
KAL explained that only 21 of the contract workers were confirmed and 9 were wait-listed
passengers. Jimmie Joseph gave priority to Perico (one of the supervisors of the hiring
company. The other seat was won through lottery by Lapuz. However, only one seat became
available and so, pursuant to the earlier agreement that Perico was to be given priority, he
alone was allowed to board.
RTC held KAL liable for damages. CA reduced the award. KAL asserts that it cannot be held
liable for breach of contract of carriage for lack of proper, competent and sufficient evidence of
the existence of such contract. Lapuz appealed as to the propriety of the reduction of the
award (P200,000-P60,000)
ISSUE:
W/N KAL should be held liable for damages
and abuses from such employees. So it is that any discourteous conduct on the part of these
employees toward a passenger gives the latter an action for damages against the carrier.
The breach of contract was aggravated in this case when, instead of courteously informing
Lapuz of his being a "wait-listed" passenger, a KAL officer rudely shouted "Down! Down!" while
pointing at him, thus causing him embarrassment and public humiliation.
A review of the record of this case shows that the injury suffered by Lapuz is not so serious or
extensive as to warrant an award of P1.5 million. The assessment of P100,000 as moral and
exemplary damages in his favor is, in our view, reasonable and realistic.
Finally, we find that the respondent court did not err in sustaining the trial court's dismissal of
KAL's counterclaim against Pan Pacific Overseas Recruiting Services Inc., whose
responsibility ended with the confirmation by KAL of Lapuz as its passenger in its Flight No.
903.
This is still another case of the maltreatment of our overseas contract workers, this time by the
airline supposed to bring the passenger to his foreign assignment. Our OCW's sacrifice much
in seeking employment abroad, where they are deprived of the company of their loved ones,
the direct protection of our laws, and the comfort of our own native culture and way of life. This
Court shall exert every effort to vindicate their rights when they are abused and shall accord
them the commensurate reparation of their injuries consistent with their dignity and worth as
members of the working class.

RULING: YES

This Court has held that a contract to transport passengers is different in kind and degree from
any other contractual relation. The business of the carrier is mainly with the traveling public. It
invites people to avail themselves of the comforts and advantages it offers. The contract of air
carriage generates a relation attended with a public duty. Passengers have the right to be
treated by the carrier's employees with kindness, respect, courtesy and due consideration.
They are entitled to be protected against personal misconduct, injurious language, indignities
6. TRANSWORLD V. CA
G.R. No. 78656 August 30, 1988
GANCAYCO, J.:
FACTS:
Rogelio A. Vinluan is a practicing lawyer who had to travel in April, 1979 to several cities in
Europe and the U.S. to attend to some matters involving several clients. He entered into a
contract of air carriage w/ Japan Airlines first class from Manila to Tokyo, Moscow, Paris,
Hamburg, Zurich, New York, Los Angeles, Honolulu and back to Manila thru the same airline
and other airlines it represents for which he was issued the corresponding first class tickets for
the entire trip.
While in Paris, although his ticket was confirmed and reconfirmed by Transworld Airlines, and
was even asked seat preference, he later on informed that there was no first class seat
available for him on the flight. He asked for an explanation but TWA employees on duty
declined to give any reason. When he began to protest, one of the TWA employees, a certain
Mr. Braam, rudely threatened him with the words "Don't argue with me, I have a very bad
temper."
To keep up with his schedule, Vinluan was compelled to take the economy seat offered to him
and was issued a refund application as he was downgraded from first class to economy class.
It turned out that there were Caucasians who were preferred to get the first class seats which
became available due to no show passengers.
RTC held TWA liable for damages. CA modified amount. TWA defended that it was merely due
to maintenance problem of the aircraft and they even made an announcement to all the
passengers for the transfer of their flight.
ISSUE:
W/N Lapuz is entitled to damages
RULING: YES
The discrimination is obvious and the humiliation to which private respondent was subjected is
undeniable. Consequently, the award of moral and exemplary damages by the respondent
court is in order.
Petitioner sacrificed the comfort of its first class passengers including private respondent
Vinluan for the sake of econonmy. Such inattention and lack of care for the interest of its
passengers who are entitled to its utmost consideration, particularly as to their convenience,
amount to bad faith which entitles the passenger to the award of moral damages.5 More so in
this case where instead of courteously informing private respondent of his being downgraded
under the circumstances, he was angrily rebuffed by an employee of petitioner.
At the time of this unfortunate incident, the private respondent was a practicing lawyer, a senior
partner of a big law firm in Manila. He was a director of several companies and was active in
civic and social organizations in the Philippines. Considering the circumstances of this case
and the social standing of private respondent in the community, he is entitled to the award of
moral and exemplary damages. However, the moral damages should be reduced to
P300,000.00, and the exemplary damages should be reduced to P200,000.00. This award
should be reasonably sufficient to indemnify private respondent for the humiliation and
embarrassment that he suffered and to serve as an example to discourage the repetition of
similar oppressive and discriminatory acts.
7. CATHAY V. SPS VALDEZ W/N Cathay breached its contract of carriage w/ the Sps. Vasquez
G.R. No. 150843. March 14, 2003
DAVIDE, JR. CJ: W/N such act of upgrading the seat accommodation was tainted w/ fraud/bad faith,
entitling Sps to damages
FACTS:
RULING:
Cathay is a common carrier engaged in the business of transporting passengers and goods by
air. Among the many routes it services is the Manila-Hongkong-Manila course. As part of its 1. YES
marketing strategy, Cathay accords its frequent flyers membership in its Marco Polo Club. The
Breach of contract is defined as the failure without legal reason to comply with the terms of a
members enjoy several privileges, such as priority for upgrading of booking without any extra
contract. It is also defined as the failure, without legal excuse, to perform any promise which
charge whenever an opportunity arises.
forms the whole or part of the contract.
Sps. Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez are frequent flyers of
In previous cases, the breach of contract of carriage consisted in either the bumping off of a
Cathay and are Gold Card members of its Marco Polo Club. They, together with their maid and
passenger with confirmed reservation or the downgrading of a passenger’s seat
two friends (Pacita Cruz and Josefina Vergel de Dios), went to Hongkong for pleasure and
accommodation from one class to a lower class. In this case, what happened was the reverse.
business.
We note that in all their pleadings, the Vazquezes never denied that they were members of
For their return flight to Manila, they were given Business Class boarding passes for the
Cathays Marco Polo Club. They knew that as members of the Club, they had priority for
Vazquezes and their two friends, and Economy Class for their maid. Sps were informed by the
upgrading of their seat accommodation at no extra cost when an opportunity arises. But, just
stewardess and attendant (Ms. Clara Chiu) that there was a seat change from Business Class
like other privileges, such priority could be waived. The Vazquezes should have been
to First Class for the Vazquezes. Sps refused the upgrade as it would not look nice for them as
consulted first whether they wanted to avail themselves of the privilege or would consent to a
hosts to travel in First Class and their guests, in the Business Class; and moreover, they were
change of seat accommodation before their seat assignments were given to other passengers.
going to discuss business matters during the flight. Ms. Chiu convinced them, insisted that the
Normally, one would appreciate and accept an upgrading, for it would mean a better
Business class is already full and said that if they would not avail themselves of the privilege,
accommodation. But, whatever their reason was and however odd it might be, the Vazquezes
they would not be allowed to take the flight. Eventually, Sps gave in.
had every right to decline the upgrade.
Upon arrival in Manila, they sought to be indemnified (P1M) for the humiliation and
2. NO. nominal lang – to vindicate a right
embarrassment caused by Cathay’s employees. They likewise demanded a written apology
from Ms. Chiu. Later, they filed a case for damages. Cathay defended that it was a practice Moral damages predicated upon a breach of contract of carriage may only be recoverable in
among commercial airlines to upgrade passengers to the next better class of accommodation, instances where the carrier is guilty of fraud or bad faith or where the mishap resulted in the
whenever an opportunity arises. RTC ruled in favor of Sps, and awarded nominal, moral, and death of a passenger. Where in breaching the contract of carriage the airline is not shown to
exemplary damages. CA deleted exemplary & reduced moral & nominal. It ruled that Cathay have acted fraudulently or in bad faith, liability for damages is limited to the natural and
novated the contract but found no bad faith on its part. probable consequences of the breach of the obligation which the parties had foreseen or could
have reasonably foreseen. In such a case the liability does not include moral and exemplary
ISSUE:
damages.
The well-entrenched principle is that the grant of moral damages depends upon the discretion
of the court based on the circumstances of each case. This discretion is limited by the principle
that the amount awarded should not be palpably and scandalously excessive as to indicate
that it was the result of prejudice or corruption on the part of the trial court.

ALITALIA AIRWAYS V. CA: Passengers must not prey on international airlines for damage
awards, like trophies in a safari. After all neither the social standing nor prestige of the
passenger should determine the extent to which he would suffer because of a wrong done,
since the dignity affronted in the individual is a quality inherent in him and not conferred by
these social indicators.
8. SANTOS III V. NORTHWEST ORIENT AIRLINES The contract is a single undivided operation, beginning with the place of departure and ending
G.R. No. 101538 June 23, 1992 with the ultimate destination. The use of the singular in this expression indicates the
CRUZ, J: understanding of the parties to the Convention that every contract of carriage has one place of
departure and one place of destination. An intermediate place where the carriage may be
FACTS: broken is not regarded as a "place of destination."

Augusto Benedicto Santos III is a minor and a resident of the Phils who purchased from NOA
(Minnesota, USA) a round-trip ticket in San Francisco, USA for his flight from San Francisco to
Manila via Tokyo and back. When he checked in for his scheduled departure to Manila, he was
informed that he had no reservation for his flight from Tokyo to Manila. He therefore had to be
wait-listed.

He sued NOA for damages in the RTC. NOA moved to dismiss on the ground of lack of
jurisdiction (improper venue). The lower court, as CA affirmed, granted the motion to dismiss.

ISSUE:
W/N RTC Makati is an improper venue

RULING: YES

ART 28 (1) WARSAW CONVENTION:

Art. 28. (1) An action for damage must be brought at the option of the plaintiff, in the territory
of one of the High Contracting Parties, either before the court of the domicile of the carrier or
of his principal place of business, or where he has a place of business through which the
contract has been made, or before the court at the place of destination.

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

It is the "destination" and not an "agreed stopping place" that controls for purposes of
ascertaining jurisdiction under the Convention.