Philippine Airlines, Inc. v. McDonnel Douglas Corp.

—McDonnell Douglas Corporation (MDC) sold to Philippine Airlines (PAL) a DC-10 Series aircraft. 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:

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.

Commercial entities, such as PAL and MDC, are…