Philippine Airlines, Inc. v. McDonnell Douglas Corp.

• Decision Date: 11 February 1987
• Court: California Court of Appeals Court of Appeals
• Parties: PHILIPPINE AIRLINES, INC. Plaintiff and Appellant, v. McDONNELL DOUGLAS CORPORATION, Defendant and Respondent. A029367.

Page 423

234 Cal.Rptr. 423

189 Cal.App.3d 234

PHILIPPINE AIRLINES, INC. Plaintiff and Appellant, v. McDONNELL DOUGLAS CORPORATION, Defendant and Respondent.

A029367.

Court of Appeal, First District, Division 1, California.

Feb. 11, 1987.

Review Denied April 29, 1987.

Kern & Wooley, Ralph S. LaMontagne, Jr., Los Angeles, for plaintiff and appellant.

Morgenstein, Ladd & Jubelirer, Marvin D. Morgenstein, Jeffrey R. Williams, Marilyn D. Abrams, San Francisco, Bryan, Cave, McPheeters & McRoberts, John J. Hennelly, Jr., Curtis M. Dombek, St. Louis, Mo., for defendant and respondent.

ELKINGTON, Acting Presiding Justice.

McDonnell Douglas Corporation ("MDC") sold to Philippine Airlines ("PAL") a DC-10 Series Aircraft. ¹ As relevant to the issues on appeal, MDC warranted under the sales agreement that the aircraft would be free from defects and that the extent of its liability under the warranty was limited to the repair, replacement or correction of any defective part. And at the end of the agreement, just above the signature lines, appeared the following paragraph:

"The warranty and service life policy provided in this article and the obligations and liabilities of seller under said warranty and service life policy are exclusive and in lieu of, and buyer waives all other remedies, warranties, guarantees or liabilities, express or implied, with respect to each aircraft, product and article delivered hereunder, arising by law or otherwise (including, without limitation, any obligation or liability of the seller arising from negligence or with respect to fitness, merchantability, loss of use, revenue or profit or consequential damages). This warranty or service life policy shall not be extended, altered or varied, except by a written instrument signed by seller and buyer."

PAL took possession of the aircraft. On August 19, 1977, a "rejected take-off" occurred apparently resulting in personal injuries to a number of the aircraft's passengers. A number of passengers filed suit in California against PAL, and PAL cross-complained for indemnity against MDC alleging, generally, that MDC's negligence in the manufacture of the aircraft was the cause of the rejected take-off.

The superior court, following the first phase of a bifurcated trial, determined that the limitation of liability clause in the parties' contract barred PAL's right to recover indemnity from MDC, and entered judgment in favor of MDC on the cross-complaint. PAL appeals from that judgment.

I. Contention: "The disclaimer fails to clearly and explicitly state that the buyer is waiving all rights to seek indemnity for payments made to personal injury claimants."

Commercial entities, such as PAL and MDC, are entitled to contract to limit the liability of one to the other, or otherwise allocate the risk of doing business (Com.Code, §§ 2316, subds. (2) and (4), 2719; Delta Air Lines, Inc. v. Douglas Aircraft Co. (1965) 238 Cal.App.2d 95, 102-105, 47 Cal.Rptr. 518; and see also Airlift Intern., Inc. v. McDonnell Douglas Corp. (9th Cir.1982) 685 F.2d 267, 270), and Scandinavian Airlines v. United Aircraft (9th Cir.1979) 601 F.2d 425, 427-429, interpreting California law). However, contractual clauses seeking to limit liability will be strictly construed and any ambiguities resolved against the party seeking to limit its liability for negligence.

"The language of an agreement in order to exclude liability for negligence must be 'clear and explicit' and 'free of ambiguity or obscurity.' (Conservatorship of Link (1984) 158 Cal.App.3d 138, 143 .) The law generally looks with disfavor on attempts to avoid liability or to secure exemption for one's own negligence. (Celli v. Sports Car Club of America, Inc. (1972) 29 Cal.App.3d 511, 518 .) The law requires exculpatory clauses to be strictly construed against the party relying on them. ( Id., at p. 519 .)

"For an agreement to be construed as precluding liability for 'active' or 'affirmative' negligence, there must be express and unequivocal language in the agreement which precludes such liability. (Vinnell Co. v. Pacific Elec. Ry. Co. (1959) 52 Cal.2d 411, 414-415 ; Goldman v. Ecco-Phoenix Elec. Corp. (1964) 62 Cal.2d 40, 48-49 [41 Cal.Rptr. 73, 396 P.2d 377].) An agreement which seeks to limit liability generally without specifically mentioning negligence is construed to shield a party only for passive negligence, not for active negligence. (Ferrell v. Southern Nevada Off-Road Enthusiasts, Ltd., [1983], supra, 147 Cal.App.3d 309, 317-318 ; Celli v. Sports Car Club of America, Inc., supra, 29 Cal.App.3d 511, 518-519 ; Basin Oil Co. v. Baash-Ross Tool Co. (1954) 125 Cal.App.2d 578, 595 ; see also Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 628, 633 [119 Cal.Rptr. 449, 532 P.2d 97].)" (Salton Bay Marina, Inc. v. Imperial Irrigation Dist. (1985) 172 Cal.App.3d 914, 932-933, 218 Cal.Rptr. 839.)

Turning to the limitation of liability clause at issue, we find, notwithstanding the application of these strict rules of interpretation, its wording to be unambiguous and its meaning to be clear. In it, MDC's liability was limited to the remedies set forth in the agreement. MDC would not otherwise be liable for loss caused by its negligence, which loss would ordinarily include payment of claims filed against PAL as a result of MDC'S negligence. Moreover, the clause further provides that, except as otherwise stated in the agreement, MDC would not be liable for consequential damages, a term defined by the Commercial Code as including "(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) injury to person or property proximately resulting from any breach of warranty." (Com.Code, § 2715.)

We do not agree, as argued by PAL, that the language of the clause "clearly relates to damage to the aircraft and not which party will bear ultimate personal injury liability." It simply and clearly excludes any and all claims PAL might have against MDC, whatever their genesis, other than as expressly permitted in the parties' agreement.

II. Contention: "The term 'consequential damages,' as utilized in the disclaimer, cannot be construed as including appellant's personal injury indemnity claims herein."

The limitation of liability phrase exempts MDC from any loss to PAL "arising from negligence, or with respect to fitness, merchantability, loss of use, revenue or profit or consequential damages." Thus, insofar as PAL's loss arose from MDC's negligence, it could not be recovered under the terms of the agreement. Insofar as it resulted from "fitness, merchantability, loss of use, revenue or profit or consequential damages"--i.e., insofar as PAL's legal remedy arose not from the law of negligence, but from the law of breach of warranty, it was likewise excluded, except, of course, as expressly provided by the contract.

PAL argues that "Numerous reported California decisions support the conclusion that the term 'consequential damages' is insufficient, as a matter of law, to encompass personal injury indemnity claims in the context of a disclaimer clause." The argument fails on a number of grounds.

First, as PAL itself argues in a different context, the term "consequential damages" in the clause relates to breach of warranty and not to negligence. Thus, under the terms of the agreement, MDC is exempt from any loss arising from its negligence, whether or not that loss could be defined as "consequential damages," and whether or not it represented payments for personal injury damages.

Second, the cases cited by PAL, negligence cases, do not preclude a party from limiting its liability for damages, consequential or otherwise, arising from its own negligence. They hold only that unless such a limitation is express and certain it will be ineffective. For example, it was held, "[T]o be sufficient as an exculpatory provision against one's own negligence, the party seeking to rely thereon must select words or terms clearly and explicitly expressing that this was the intent of the parties." (Celli v. Sports Car Club of America, Inc. (1972) 29 Cal.App.3d 511, 519, 105 Cal.Rptr. 904.) And, "There is in [the limitation of liability clause] no mention of negligence and the writing must be strictly construed, with the result that it does not cover defendant's own negligence." (Woodall v. Wayne Steffner Productions (1962) 201 Cal.App.2d 800, 814, 20 Cal.Rptr. 572.)

The clause in the present case clearly and explicitly limited MDC's liability for negligence.

Third, if PAL's argument can be interpreted that "consequential damages" do not include personal injury damages for breach of warranty, the argument fails in light of Commercial Code section 2715, supra, (and see Howe v. Pioneer Mfg. Co. (1968) 262 Cal.App.2d 330, 347, 68 Cal.Rptr. 617).

Finally, it must be emphasized that PAL is not seeking to recover personal injury damages, but a monetary loss resulting from its payment of such damages to others. "A tort defendant's claim for comparative indemnity from a concurrent tortfeasor is separate and distinct from the injured party's claim against the tortfeasors...." (County of Riverside v. Loma Linda University (1981) 118 Cal.App.3d 300, 315, 173 Cal.Rptr. 371.)

III. Contention: "As a matter of law, the exculpatory provision is contrary to the public interest, and, accordingly, unenforceable."

In Tunkl v. Regents of University of California (1963) 60 Cal.2d 92, 32 Cal.Rptr. 33, 383 P.2d 441, the court while holding, "While obviously no public policy opposes private, voluntary transactions in which one party, for a consideration, agrees to shoulder a risk which the law would otherwise have placed upon the other party," (id., at p. 101, 32 Cal.Rptr. 33, 383 P.2d 441), also set forth a number of factors to be considered in determining if an exculpatory clause contained...