Transportation and maritime law

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only:

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(2) Act of the public enemy in war, whether international or civil;
Art. 1739. In order that the common carrier may be exempted from responsibility, the natural disaster must have been the proximate and only cause of the loss. However, the common carrier must exercise due diligence to prevent or minimize loss before, during and after the occurrence of flood, storm, or other natural disaster in order that the common carrier may be exempted from liability for the loss, destruction, or deterioration of the goods. The same duty is incumbent upon the common carrier in case of an act of the public enemy referred to in Art. 1734 (2).
4 Agbayani:
Acts of public enemy.-- This defense is not absolute. Under 1739, in order for the CC to be exempted from liability, (1) the act of the public enemy must have been the proximate and only cause; and (2) the CC must have exercised due diligence to prevent or minimize the loss before, during and after the act of the public enemy causing the loss, destruction or deterioration of the goods.

(c) Act or omission of the shipper

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only:

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(3) Act or omission of the shipper or owner of the goods;
Art. 1741. If the shipper or owner merely contributed to the loss, destruction or deterioration of the goods, the proximate cause thereof being the negligence of the common carrier, the latter shall be liable in damages, which, however, shall be equitably reduced.

Act or omission of the shipper.-- The act or omission of the shipper must be the proximate cause of the loss, destruction or deterioration of the goods. If the shipper merely contributed to the loss,etc. and the proximate cause is still the negligence of the CC, the CC shall still be liable for damages although the damages shall be equitably reduced.

(d) Character of goods, etc.

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only:

(4) The character of the goods or defects in the packaging or in the containers;
Art. 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the character of the goods, or the faulty nature of the packing or of the containers, the common carrier must exercise due diligence to forestall or lessen the loss.
Art. 366. Within the twenty four hours following the receipt of the merchandise, a claim may be brought against the carrier on account of damage or average found therein on opening the packages, provided that the signs of the damage or average giving rise to the claim may not be known from the exterior part of the packages, and in case that they may be so ascertained, said claim shall only be admitted at the time of the receipt of the packages.

After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim whatsoever shall be admitted against the carrier with regard to the condition in which the goods transported were delivered. (Code of Commerce.)

Claims for damages must be made at the time the goods are delivered unless the indications of the damage cannot be ascertained from the exterior of the package, in which case such written claims must be made w/in 24 hours from delivery

Rule: As long as the damage to the goods was due purely to the inherent nature or defect of the goods or of the containers thereof, the CC cannot be held responsible. However, under 1742, the CC must exercise due diligence to forestall or lessen the loss for it to completely escape liability.

Govt. vs Ynchausti, 40 Phil 219
F: Plaintiff shipped a cargo of roofing tiles from Manila to Iloilo on a vessel owned by Ynchausti. Defendant stamped on the bill of lading the condition that the goods have been accepted for transportation subject to the conditions prescribed by the Insular Collector of Customs. The tiles were delivered by defendant to the consignee of the plaintiff at Iloilo. Upon delivery, it was found that some of the tiles had been damaged. The LC absolved the defendant from any liability since the defendant was able to prove that the tiles were leaded, stored and discharged by hand labor and not by any mechanical device. Defendant proved, without dispute from the plaintiff, that there was no negligence on its part, the tiles being discharged by handlabor and not by mechanical device.
Issue : WON the terms and conditions of the bill of lading were binding upon the plaintiff. YES.
Ratio: The defendant placed said stamp upon the bill of lading before the plaintiff shipped the tiles, and that having shipped the tiles under said bill, with the terms and conditions of carriage stamped thereon, the govt. must be deemed to have assented to said terms and conditions. The binding effect of the conditions stamped on the bill of lading did not proceed from the Collector of Customs, but from the actual contract which the parties made. Each bill of lading is a contract and the parties thereto are bound by its terms.

The defendant, to free itself from liability, was only obliged to prove that the damages suffered by the tile were by virtue of the nature or defect of the articles. The plaintiff, to hold the defendant liable, was obliged to prove that the damage to the tiles, by virtue of their nature, occurred on account of the defendant's negligence or because the latter did not take precaution usually adopted by careful persons.

The defendant proved,and the plaintiff did not attempt to dispute that the tiles were of a brittle and fragile nature and that they were delivered to the defendant without any packing or protective covering. The plaintiff, not having proved negligence on the part of the defendant, is not entitled to recover damages.


Southern Lines vs CA, 4 SCRA 256
F: The city of Iloilo requisitioned for rice from NARIC in Manila. NARIC shipped from Manila to Iloilo 1726 sacks of rice on board the SS Gen. Wright belonging to Southern Lines. After the city paid for the rice, it was noted that 41 sacks were missing. The city filed a complaint against NARIC and Southern Lines to recover the amount. The LC absolved NARIC but ordered Southern Lines to pay. The CA affirmed.
Issue: WON petitioner is liable for the loss or shortage. YES.
Ratio: Under Art. 361 of the Code of Commerce, the carrier, in order to free itself from liability, was only obliged to prove that the damage suffered by the goods were by virtue of defects of the articles. Under Art. 362, the plaintiff in order to hold the carrier liable, was obliged to prove that the damage to the goods by virtue of their nature, occurred on account of the carrier's negligence or because the carrier did not take the precaution adopted by careful persons.

Petitioner claims exemption based on the fact that the sacks were in bad condition and that rice was improperly packed causing a lot of spillage of the rice while it was being loaded.

Southern Lines' contention is untenable, for if the fact of improper packing is known to the carrier or its servants or apparent upon ordinary observation, but it accepts the goods notwithstanding such condition, it is not relieved of liability for loss or injury resulting therefrom. Furthermore, the petitioner itself frankly admitted that the strings tying the bags of rice were broken, that some bags were with holes and plenty of rice were spilled inside the hull of the vessel, and that the boat personnel collected 26 sacks of rice, which they distributed among themselves. This shows that the shortage resulted from the negligence of the petitioner.

This is an action for refund of the amount paid in excess of delivery and is not for damages. Therefore, the 24 hour rule under Art. 366 does not apply.

(e) Order of competent authority
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only:

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(5) Order or act of competent public authority.
Art. 1743. If through order of public authority the goods are seized or destroyed, the common carrier is not responsible, provided said public authority had power to issue the order.

4 Agbayani:

Order or act of competent authority.-- Under 1743, the CC is not responsible for the loss, etc. of the goods if the public authority had power to issue the order. Where the officer acts without legal process, the CC will be held liable.

Ganzon vs CA, 161 SCRA 646
F: Gelacio Tumambing contracted the services of Ganzon to haul 305 tons of scrap iron from Mariveles, Bataan to the port of Manila on board the lighter LCT Batman. When half of the scrap iron was already loaded, the mayor of Mariveles arrived and demanded P 5,000 from Tumambing. An argument resulted in the shooting of Tumambing. The loading of the scrap iron was resumed but the acting mayor arrived and ordered Captain Niza to dump the scrap iron. The acting mayor took the rest to the compound of NASSCO and took custody of the scrap iron. Tumambing filed an action for damages against Ganzon based on culpa contractual. The TC and CA held Ganzon liable.
Held: Ganzon contended that the scrap iron had not been unconditionally placed under his custody and control to make him liable. However, he admitted that he received the scraps of iron which Tumambing delivered to him. By the said act of delivery, the scraps were unconditionally placed in the possession and control of the common carrier and upon their receipt by the carrier for transportation, the contract of carriage was deemed perfected. The carrier's extraordinary responsibility for the loss, destruction, or deterioration of the goods commenced.

Pursuant to Art. 1736, such extra-ordinary responsibility would cease only upon the delivery, actual or constructive, by the carrier to the consignee or to the person who has the right to receive them. The fact that part of the shipment had not been loaded on board the lighter did not impair the said contract of transportation as the goods remained in the custody and control of the carrier, albeit still unloaded.

Ganzon failed to show that the loss was due to any causes under Art. 1734. We cannot sustain the theory of caso fortuito. The carrier raised the defense that the loss was due to an order or act of competent public authority. The carrier, however, failed to show that the acting mayor had the power to issue the disputed order or that it was lawful or issued under legal process of authority. The order was part of the pressure by the mayor to shakedown Tumambing for P 5,000. The order did not constitute valid authority for Ganzon to carry out.

In any case, the intervention of the municipal officials was not of a character that would render impossible the fulfillment by the carrier of its obligation. The petitioner was not duty bound to obey the illegal order to dump into the sea the scrap iron. There is absence of sufficient proof that the issuance of the order was attended with such force or intimidation as to completely overpower the will of the carrier's EEs.

Melencio-Herrera, Dissenting: Through the order or act of competent public authority, the performance of the contract was rendered impossible. The captain has no control over the situation just as Tumambing had no control over the situation.
3. Duration of Extraordinary Responsibility
Art. 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of Art. 1738.
Art. 1737. The common carrier's duty to observe extra-ordinary diligence in the vigilance over the goods remains in full force and effect even when they are temporarily unloaded or stored in transit, unless the shipper or owner has made use of the right of stoppage in transitu.
Art. 1738. The extra-ordinary liability of the common carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination until the consignee has been advised of the arrival of the goods and has reasonable opportunity thereafter to remove them or otherwise dispose of them.
4 Agbayani:
When carrier's responsibility begins.-- Under Art. 1738, the extra-o responsibility of the CC begins from the time the goods are delivered to the carrier. The delivery to the CC must place the goods to be transported unconditionally in the possession of the CC and the CC must receive them. Otherwise, the extra-ordinary responsibility of the CC will not commence.
When carrier's responsibility terminates.-- Under 1738, the extra-ordinary responsibility of the CC is terminated at the time the goods are delivered to the consignee or the person who has a right to receive them (actual or constructive delivery).

Constructive delivery: Notice by the CC that the cargo had already arrived, placing them at the disposal of the shipper or consignee releases CC from extra-ordinary responsibility. From such moment the consignee or shipper should exercise over the cargo the ordinary control pertinent to ownership (should unload cargo from the CC)

Shipper bound to observe all diligence in obtaining delivery of goods.-- The shipper is bound to observe all diligence in obtaining delivery of the goods. Once the goods are delivered, the extra-ordinary responsibility of the CC ceases.
Liability of shipper for delay in obtaining delivery of goods, demurrage.-- The shipper is liable for lost earnings occasioned by the unnecessary delay in the use of the vehicles belonging to the carrier, due in turn to the failure of the former, upon receipt of notice of the arrival of the goods at the place of destination, to unload forthwith and take away the cargo from the vehicles. This is a charge for demurrage (addtl. service provided by CC)
Effect of storing in transit.-- Under 1737, the temporary unloading or storage of the goods during the time that they are being transported does not interrupt the extra-ordinary responsibility of the CC

Exception: Where the shipper or owner exercises its right of stoppage in transitu (the act by which the unpaid vendor of goods stops their progress and resumes possession of them, while they are in the course of transit from him to the purchaser, and not yet actually delivered to the latter. This is exercised when the buyer is or becomes insolvent.)

Responsibility of carrier when right exercised.-- The extra-ordinary responsibility of the CC ceases when the goods being transported are temporarily unloaded or stored in transit be reason of the exercise of the right of stoppage in transitu by the unpaid seller. The CC holds the goods in the capacity of an ordinary bailee or warehouseman upon the theory that the exercise of the right of stoppage in transitu terminates the contract of carriage (ordinary diligence is required)
Effect of storage in warehouse of carrier.-- Under 1738, the extra-ordinary responsibility of the CC does not cease notwithstanding the fact that the goods being transported are stored in the warehouse of the CC at the place of destination. Extra-ordinary responsibility ceases only after the consignee has been advised of the arrival of the goods and has had reasonable opportunity to remove them or otherwise dispose of them.

Liability as a warehouseman (ordinary diligence) arises only when the consignee has been advised of the arrival of the goods and has had reasonable opportunity to remove them or otherwise dispose of them

Cia Maritima vs Insurance Co. of North America, 12 SCRA 213
F: Macleod and Co. contracted the services of Cia Maritima for the shipment of bales of hemp from Davao to Manila. The bales were loaded into CC's lighters. One of the lighters sunk. The insurance co. paid Macleod and filed to collect from CC. CC denied liability on the grounds that the hemp was loaded on a barge owned by the CC free of charge, that there was no bill of lading issued thereby resulting to the nonexistence of a contract of carriage, that the sinking was due to a fortuitous event, and that the insurance co. has no personality to sue.
Held: There was a complete contract of carriage the consummation of which has already begun when the shipper delivered the cargo to the carrier and the latter took possession of the same by placing it on a lighter manned by its EEs, under which Macleod became entitled to the privilege secured to him by law for its safe transportation and delivery, and the carrier to the full payment of its freight upon completion of the voyage. The barges or lighters were merely employed as the first step of the voyage, which is part of the contract.

The receipt of the goods by the carrier has been said to lie at the foundation of the contract to carry and deliver, and if no goods are received there can be no such contract. The liability and responsibility of the carrier under a contract for the carriage of goods commence on their actual delivery to, or receipt by the carrier or an authorized agent, of the goods. The test as to whether the relation of shipper and carrier had been established is: Had the control and possession of the goods been completely surrendered by the shipper to the CC. Whenever the control and possession of goods passes to the carrier and nothing remains to be done by the shipper, then it can be said with certainty that the relation of shipper and carrier has been established.

The bill of lading is not indispensable to a contract of carriage. It is merely documentary proof of the agreement of the parties.

There was no force majeure. The reason for the damage or the loss was lack of adequate protections and measures taken by the carrier to prevent the loss.

Lu Do vs Binamira, 101 Phil 120
F: Delta Co. of NY shipped six cases of films and photographic supplies consigned to Binamira. The shipped arrived in Cebu and discharged her cargo, placing it in the possession and custody of the arrastre operator appointed by the Bureau of Customs. The cargo was checked both by the stevedoring co. as well as by the arrastre operator and was found in good order. In the contract of carriage, however, it was stipulated that the carrier is no longer liable for the cargo upon its delivery to the hands of the custom authorities. The cargo was delivered to Binamira and some goods were missing.
Held: The general rule is that CC's responsibility to observe extra-ordinary diligence lasts from the time the goods are placed in the possession of the carrier until they are delivered to the consignee. BUT this rule applies only when the loss, destruction and deterioration of the goods takes place while the goods are in the possession of the carrier and not after it has lost control of them. While the goods are in its possession, it is but fair that it exercise extra-ordinary diligence in protecting them from damage and if loss occurs, the law presumes that it was due to its fault or negligence.

While delivery to the customs authorities is not delivery to the consignee, the parties may however, agree to limit the liability of the carrier considering that the goods have still to go through the inspection of the customs authorities before they are actually turned over to the consignee. This stipulation is not contrary to morals or public policy. This is a situation where the CC loses control of the goods because of custom regulations and it is unfair that it be made responsible for any loss or damage during such interregnum.

APL vs Klepper, 110 Phil 243
F: Klepper shipped one lift van containing personal and household effects from Yokohama to Manila. While the lift van was being unloaded by crane, it fell on the pier damaging its contents. The TC found for Klepper.
Held: APL does not question the finding that the damage was due its negligence but contends that its liability cannot exceed $500 based on the bill of lading and Sec 4(5) of the COGSA. Regardless of its negligence, the carrier's liability would attach because being a CC, its responsibility is extra-ordinary and lasts from the time the goods are placed in its possession until they are delivered, actually or constructively, to the consignee or to the person who has a right to receive them.

The carrier should only pay $ 500; the shipper who accepted the bill of lading is bound by its terms. COGSA is merely suppletory to the provisions of the NCC which govern the contract.

4. Agreement Limiting Liability
(a) As to diligence required
Art. 1744. A stipulation between the common carrier and the shipper or owner limiting the liability of the former for the loss or destruction, or deterioration of the goods to a degree less than extra-ordinary diligence shall be valid, provided it be:

(1) In writing, signed by the shipper or owner;

(2) Supported by a valuable consideration other than the service rendered by the CC; and

(3) Reasonable, just and not contrary to public policy.
Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy:

(1) That the goods are transported at the risk of the owner or shipper;

(2) That the common carrier will not be liable for any loss, destruction or deterioration of the goods;

(3) That the common carrier need not observe any diligence in the custody of the goods;

(4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or of a man of ordinary prudence in the vigilance over the movable transported;

(5) That the common carrier shall not be responsible for the acts or omissions of his or its employees;

(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not act with grave or irresistible threat, violence or force, is dispensed with or diminished;

(7) That the common carrier is not responsible for the loss, destruction, or deterioration of goods on account of the defective condition of the car, vehicle, ship, airplane or other equipment used in the contract of carriage.
Art. 1751. The fact that the common carrier has no competitor along the line or route, or a part thereof, to which the contract refers shall be taken into consideration of the question of whether or not a stipulation limiting the common carrier's liability is reasonable, just and in accordance with public policy.

(b) As to amount liability

Art. 1749. A stipulation that the common carrier's liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.
Art. 1750. 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.

Ysmael vs Barreto, 51 Phil 90
F: Plaintiff sought to recover from defendant the alleged value of 4 cases of merchandise which it delivered to a vessel of defendant at the port of Manila to be shipped to Surigao, but which were never delivered to consignee. Defendant relied on clause 7 of the bill of lading where it provided that actions not brought within 60 days from the time the cause of action accrued shall be barred, and on clause 12 which provided that the defendant is not liable for any package in excess of P 300 unless the value and contents of such package are correctly stated in the bill of lading at the time of the shipment. Plaintiffs complaint was filed a little less than 6 months after the shipment was made.
Held: The evidence shows that 164 cases were shipped valued at P 2,500 a case. The limit of defendant's liability for each case for loss or damage from any cause or for any reason, would put it in the power of the defendant to take the whole cargo of 164 cases at a value of P 300/case, or less than 1/8 of its actual value. If that rule should be sustained, no silk would ever be shipped. Such limitation of value is unconscionable and void as against public policy.

The validity of stipulations limiting the carrier's liability is to be determined by their reasonableness and their conformity to the sound public policy. It cannot lawfully stipulate for exemption from liability unless such exemption is just and reasonable and unless the contract is freely and fairly made. No contractual limitation is reasonable which is subversive of public policy. A CC cannot limit its liability for injury or loss where such is caused by its own negligence, unskillfulness or carelessness of its EEs. The rule rests on public policy. The shipper and CC are not on equal terms; the shipper is entirely at the mercy of the CC unless protected by the law. Such contracts are wanting in the element of voluntary assent.

The action was brought within reasonable time considering the distance between Surigao and Manila and the fact that plaintiff had to make a full investigation to determine liability. Stipulations limiting the time for bringing suit must be reasonable, otherwise they can be declared void.

Heacock vs Macondray, 42 Phil 205
F: Plaintiff shipped Edmonton clocks from NY to Manila on board defendant's vessel. It was agreed in the bill of lading that the value of the goods receipted do not exceed $500 per freight on or in proportion for any part of a ton, unless the value be expressly stated in the bill and freight paid. It was also agreed that in the event of claims for shortage or damage the carrier shall not be liable for more than the net invoice price plus freight and insurance less charges, and any loss or damage for which the carrier may be liable shall be adjusted pro rata on said basis. The clocks were not delivered despite demands. Plaintiff claimed P420 as the MV of the clocks, while defendant claimed P76.36 as the proportionate freight ton value.
Held: Three kinds of stipulations have often been made in a bill of lading. First, one exempting the carrier from any and all liability for loss or damage occasioned by its own negligence. Second, one providing for an unqualified limitation of such liability to an agree valuation. Third, one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of freight. The first and second stipulations are invalid as contrary to public policy. The third is valid and enforceable.

A stipulation in the bill of lading limiting the liability of the CC to a specified amount unless the shipper declares a higher value and pays a higher freight is valid and enforceable. If a CC gives to a shipper the choice of 2 rates, the lower of them conditioned upon his agreeing to a stipulated valuation of his property in case of loss, even by the carrier's negligence, if the shipper makes the choice understandingly and freely, and names his valuation, he cannot thereafter recover more than the value which he thus places upon his property.

Shewaram vs PAL, 17 SCRA 606
F: Plaintiff bought a plane ticket from Zamboanga to Manila. When he arrived in Manila, his suitcase was tampered with and his camera and radio were lost. PAL contended that plaintiff was bound by the conditions printed at the back of his ticket which provided that the liability of PAL for any loss is limited to the value of the thing unless the passenger declares in advance a higher valuation and pays an additional charge, and that the value is conclusively deemed not to exceed P 100/ticket.
Held : Two requisites must be fulfilled in order that the liability of PAL be limited according to the stipulations behind the ticket stub : (1) the contract is just and reasonable under the circumstances; and (2) it has been fairly and freely agreed upon. (Art. 1750)

The fact that the conditions are printed at the back of the ticket stub in letters so small that they are hard to read would not warrant the presumption that plaintiff was aware of those conditions such that he had "fairly and freely agreed" to those conditions. PAL has admitted that passengers do not sign the ticket. Also the carrier cannot limit his liability for injury or loss of goods shipped when such injury or loss was caused by its own negligence. (Arts. 1734, 1735)

Ong Yiu vs CA, 91 SCRA 223
F: Atty. Ong Yiu was a passenger on a PAL Cebu-Butuan flight to attend court hearings in Butuan. His suitcase was accidentally sent to Manila. PAL-Manila sent the suitcase to Butuan but the lock had been opened and a folder containing court documents was missing. Plaintiff refused to accept the luggage. PAL-Cebu delivered the luggage to Ong Yiu with the promise to investigate the matter. Plaintiff sued and was awarded moral and exemplary damages. CA reversed holding that PAL was guilty of simple negligence and denied moral and exemplary damages but ordered PAL to pay P100, the baggage liability assumed by it under the condition of carriage printed on the back of the ticket.
Held: PAL incurred delay in the delivery of petitioner's luggage. However, there was no bad faith. The liability of PAL was limited to the stipulations printed on the back of the ticket.

While the passenger had not signed the plane ticket, he is nevertheless bound by the provision thereof; such provisions have been held to be part of the contract of carriage and valid and binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation. It is what is known as a contract of adhesion wherein one party imposes a ready made form of contract on the other; it is 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 agree valuation does not offend against the policy of the law forbidding one from contracting against his own negligence.

Considering that petitioner had failed to declare a higher value for his baggage, he cannot be permitted a recovery in excess of P 100.00. Besides, passengers are advised not to place valuable items inside their baggage. Also, there is nothing in the evidence to show the actual value of the goods allegedly lost by petitioner.

PAN AM vs IAC, 164 SCRA 268
F: This is a petition filed by Pan Am to limit its liability for lost baggage containing promotional and advertising materials for films to be exhibited in Guam and the US, clutch bags, barong tagalogs and personal belongings of Rene Pangan to the amount specified in the airline ticket absent a declaration of a higher valuation and payment of additional charges.

Pan Am contends that its liability for lost baggage is limited to $600 ($20 x 30 kilos) as the latter did not declare a higher value for his baggage. Such stipulation is printed at the back of the ticket.

Held : Pan Am cited Ong Yiu vs CA. Such case is squarely applicable in this case. The ruling in Shewaram vs PAL is inapplicable since it was premised on the fact that the conditions printed at the back of the ticket were so small and hard to read.

Liability is limited to $600 as stipulated at the back of the ticket.

The SC reversed the CA ruling awarding respondent damages for lost profits. The rule laid down in Mendoza vs PAL provides that before damages can be awarded for loss of profits on account of delay or failure of delivery, it must have appeared that CC had notice at the time of delivery to him of the particular circumstances attending the shipment, and which probably would lead to such special loss if he defaulted. In the absence of a showing that Pan Am's attention was called to the special circumstances requiring prompt delivery of the luggage, it cannot be held liable for the cancellation of respondent's contracts as it could not have foreseen such an eventuality when it accepted the luggage for transit.

Pan Am vs Rapadas, 209 SCRA 67
F: Jose Rapadas was en route from Guam to Manila. While standing in line to board the flight, he was ordered by Pan Am's handcarry control agent to check in his Samsonite attache case. He protested on the ground that other passengers were permitted to handcarry bulkier baggages. He tried to check-in without having to register his attache case. He was however forced to register his baggage. He gave his attache case to his brother who checked it in for him without declaring its contents or the value of its contents. Upon arriving in Manila, he was given all his checked-in baggages except the attache case. Since he felt ill, he sent his son to request for the search of the missing luggage. He sent letters of demand to Pan Am.

Pan Am offered to settle the claim for $160, representing the CC's alleged limit of liability for loss or damage to a passenger's personal property. Rapadas filed this action for damages. He alleged that Pan Am discriminated or singled him out in ordering that his luggage be checked in; that Pan Am neglected its duty in the handling and safekeeping of his attache case from the point of embarkation in Guam to his destination in Manila; that the value of the lost attache case and its contents is $42,403.90. According to him, the loss resulted in his failure to pay certain obligations, failure to remit money sent through him to relatives, inability to enjoy the fruits of his retirement and vacation pay and inability to return to Tonga Construction Co. to comply with then existing contracts. During the trial, he showed proof of the contents of his attache case.

Pan Am contended that the claim was subject to the Notice of Baggage Liability Limitations attached to the ticket. Such notice was also conspicuously posted in its offices. It alleged that its liability is limited to $160 because Rapadas did not declare a higher value and did not pay the corresponding additional charges.

The lower court ruled in favor of Rapadas. It however did not find Pan Am guilty of discriminatory acts or bad faith. CA affirmed the decision.

Issue: WON a passenger is bound by the terms of a passenger ticket declaring that the limitations of liability set forth in the Warsaw Convention as amended by the Hague Protocol shall apply in case of loss, damage or destruction to a registered luggage of a passenger. YES. Pan Am was ordered to pay $400 and P 10,000 as attorney's fees and costs of suit.
Held: There is no dispute that there was a notice appearing on page 2 of the ticket stating that the Warsaw Convention governs in case of death or injury to a passenger or of loss, damage or destruction to a passenger's luggage. Such notice should be sufficient notice showing the applicability of the Warsaw limitations. 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 Warsaw Convention, as amended, specifically provides that it is applicable to international carriage which it defines as "any carriage in which, according to the agreement between the parties, the place of departure and the place of destination xxx are situated either within the territories of two High Contracting Parties or within the territory of a single High Contracting Party if there is an agreed stopping place within the territory of another State xxx." Nowhere in the Warsaw Convention is such detailed notice of baggage liability limitations required. It is however a common, safe and practical custom for air carriers to indicate beforehand the precise sums equivalent to those fixed by Art. 22(2) of the Convention.

The facts show that Rapadas actually refused to register his attache case. In attempting to avoid registering the luggage, he manifested a disregard of airline rules on allowable handcarried baggages. Prudence dictates that cash and jewelry should be removed from checked-in luggage and placed in one's pockets or handcarried. 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 readily complied with airline regulations from the start, this situation would not have arisen.

While contracts of adhesion are not entirely prohibited, neither is blind reliance on them encouraged. In the face of facts showing they should be ignored because of their basically one- sided nature, the Court does not hesitate to rule out blind adherence to their terms. The SC is not saying 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 Court simply recognizes that 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 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 that we have to enforce the contract as it is the only reasonable basis to arrive at a just award.

(c) Factors affecting agreement