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G.R. No. 119641 May 17, 1996

PHILIPPINE AIRLINES, INC., petitioner,

vs.
COURT OF APPEALS, DR. JOSEFINO MIRANDA and LUISA MIRANDA, respondents.

REGALADO, J.:p

In this appeal by certiorari, petitioner Philippine Airlines, Inc. (PAL) assails the decision of respondent Court of Appeals in CA-G.R.
CV No. 29147 1 which affirmed the judgment of the trial court finding herein petitioner liable as follows:

Wherefore, premises considered, judgment is hereby rendered ordering the

defendant, Philippine Airlines or PAL, to pay to the plaintiffs, Dr. Josefino Miranda
and Luisa Miranda, the sum of P100,000.00 as moral damages; P30,000.00 as
exemplary or corrective damages; P10,000.00 as attorney's fees; and the costs. 2

The factual antecedents of the present petition reveal that sometime in May, 1988, Dr. Josefino
Miranda and his wife, Luisa, who were residents of Surigao City, went to the United States of
America on a regular flight of Philippine Airlines, Inc. (PAL). On June 19, 1988, after a stay of over a
month there, they obtained confirmed bookings from PAL's San Francisco Office for PAL Flight PR
101 from San Francisco to Manila via Honolulu on June 21, 1988; PAL flight PR 851 from Manila to
Cebu on June 24, 1988; and PAL Flight PR 905 from Cebu to Surigao also on June 24, 1988.

Accordingly, on June 21, 1988, private respondents boarded PAL Flight PR 101 in San Francisco
with five (5) pieces of baggage. After a stopover at Honolulu, and upon arrival in Manila on June 23,
1988, they were told by the PAL personnel that their baggage consisting of two balikbayan boxes,
two pieces of luggage and one fishing rod case were off-loaded at Honolulu, Hawaii due to weight
limitations. Consequently, private respondents missed their connecting flight from Manila to Cebu
City, as originally scheduled, since they had to wait for their baggage which arrived the following
day, June 24, 1988, after their pre-scheduled connecting flight had left. They consequently also
missed their other scheduled connecting flight from Cebu City to Surigao City.

On June 25, 1988, they departed for Cebu City and therefrom private respondents had to transfer to
PAL Flight 471 for Surigao City. On the way to Surigao City, the pilot announced that they had to
return to Mactan Airport due to some mechanical problem. While at Mactan Airport, the passengers
were provided by PAL with lunch and were booked for the afternoon flight to Surigao City. However,
said flight was also canceled.

Since there were no more lights for Surigao City that day, private respondents asked to be billeted at
the Cebu Plaza Hotel where they usually stay whenever they happen to be in Cebu City. They were,
however, told by the PAL employees that they could not be accommodated at said hotel supposedly
because it was fully booked. Contrarily, when Dr. Miranda called the hotel, he was informed that he
and his wife could be accommodated there. Although reluctant at first, PAL eventually agreed to
private respondents' overnight stay at said hotel. Oscar Jereza, PAL duty manager, approved the
corresponding hotel authority with standard meals. It was only after private respondents' insistence
that their meals be ordered a la carte that they were allowed to do so by PAL provided that they sign
for their orders.

Inasmuch as the shuttle bus had already left by the time private respondents were ready to go to the
hotel, PAL offered them P150.00 to include the fare for the return trip to the airport. Dr. Miranda
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asked for P150.00 more as he and his wife, along with all of their baggage, could not be
accommodated in just one taxi, aside from the need for tipping money for hotel boys. Upon refusal of
this simple request, Dr. Miranda then declared that he would forego the amenities offered by PAL.
Thus, the voucher for P150.00 and the authority for the hotel accommodations prepared by PAL
were voided due to private respondents' decision not to avail themselves thereof.

To aggravate the muddled situation, when private respondents tried to retrieve their baggage, they
were told this time that the same were loaded on another earlier PAL flight to Surigao City. Thus,
private respondents proceeded to the hotel sans their baggage and of which they were deprived for
the remainder of their trip. Private respondents were finally able to leave on board the first PAL flight
to Surigao City only on June 26, 1988. Thereafter, they instituted an action for damages which, after
trial as well as on appeal, was decided in their favor.

Petitioner PAL has come to us via the instant petition for review on certiorari, wherein it
challenges the affirmatory decision of respondent Court of Appeals  (1) for applying Articles
3

2220, 2232 and 2208 of the Civil Code when it sustained the award of the court a quo for
moral and exemplary damages and attorney's fees despite absence of bad faith on its part;
and (2) for not applying the express provisions of the contract of carriage and pertinent
provisions of the Warsaw Convention limiting its liability to US$20.00 per kilo of baggage.

I. Anent the first issue, petitioner argues that there was no bad faith on its part for while there was
admittedly a delay in fulfilling its obligation under the contract of carriage with respect to the transport
of passengers and the delivery of their baggage, such delay was justified by the paramount
consideration of ensuring the safety of its passengers. It likewise maintains that its employees
treated private respondents fairly and with courtesy to the extent of acceding to most of their
demands in order to mitigate the inconvenience occasioned by the measures undertaken by the
airline to ensure passenger safety. 4

It reiterated its position that the off-loading of private respondents' baggage was due to "weight
limitations," as lengthily explained by petitioner from an aeronautically technical viewpoint,  taking
5

into consideration such variable factors as flight distance, weather, air resistance, runway condition
and fuel requirement. Given the variable weather conditions, it claimed that the weight limitation for
each flight can only be ascertained shortly before take-off. While admittedly there would be a
resulting inconvenience in the accommodations of the passengers and the handling of their cargo,
the same is outweighed by the paramount concern for the safety of the flight.

Petitioner moreover impugns the Court of Appeal's allegedly improper reliance on the inaccurate
interpretation of the testimony of PAL's baggage service representative, Edgar Mondejar, * that
private respondents' baggage were off-loaded to give preference to baggage and/or cargo
originating from Honolulu. PAL argues that Mondejar's knowledge of what transpired in Honolulu
was merely based on the telex report forwarded to PAL's Manila station stating that the off-loading
was due to weight limitations. 6

Petitioner enumerates the following incidents as indicative of its good faith in dealing with private
respondents: (1) The cancellation of the flight to Surigao City due to mechanical/engine trouble was
to ensure the safety of passengers and cargo; (2) PAL offered to shoulder private respondents'
preferred accommodations, meals and transportation while in Cebu City with more than the usual
amenities given in cases of flight disruption, and gave them priority in the following day's flight to
Surigao City; (3) PAL employees did not act rudely towards private respondents and its managerial
personnel even gave them special attention; (4) It was reasonable for PAL to limit the transportation
expense to P150.00, considering that the fare between the airport and the hotel was only P75.00,
and they would be picked up by the shuttle bus from the hotel to the airport, while the request for
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money for tips could not be justified; and (5) The inadvertent loading of private respondents'
baggage on the replacement flight to Surigao City was at most simple and excusable negligence due
to the numerous flight disruptions and large number of baggage on that day.

Petitioner strenuously, and understandably, insists that its employees did not lie to private
respondents regarding the want of accommodations at the latter's hotel of preference. The only
reason why Cebu Plaza Hotel was not initially offered to them by PAL was because of the earlier
advice of the hotel personnel that not all the stranded PAL passengers could be accommodated
therein. It claimed that it was in accordance with the airline's policy of housing all affected
passengers in one location for easy communication and transportation, which accommodations in
this instance could be provided by Magellan Hotel. However, upon insistence of the Mirandas on
their preference for Cebu Plaza Hotel, Jeremias Tumulak, PAL's passenger relations officer, told
them that they could use the office phone and that if they could arrange for such accommodation
PAL would shoulder the expenses. This concession, so petitioner avers, negates any malicious
intent on its part.

Crucial to the determination of the propriety of the award of damages in this case is the lower court's
findings on the matter of bad faith, which deserves to be quoted at length:

These claims were reasonable and appeared to be supported by the evidence. Thus
it cannot be denied that plaintiffs had to undergo some personal inconveniences in
Manila for lack of their baggage. It is also highly probable that plaintiffs' scheduled
return to Surigao City was upset because of their having to wait for one day for their
missing things. Consequently, it was quite evident that the off-loading of plaintiffs'
baggage in Honolulu was the proximate cause of plaintiffs subsequent
inconveniences for which they claimed to have suffered social humiliation, wounded
feelings, frustration and mental anguish.

xxx xxx xxx

In the present case there was a breach of contract committed in bad faith by the
defendant airlines. As previously noted, plaintiffs had a confirmed booking on PAL
Flight PR 101 from San Francisco to Manila. Therefore plaintiffs were entitled to an
assured passage not only for themselves but for their baggage as well. They had a
legal right to rely on this.

The evidence showed that plaintiffs' baggage were properly loaded and stowed in
the plane when it left San Francisco for Honolulu. The off-loading or bumping off by
defendant airlines of plaintiffs' baggage to give way to other passengers or cargo
was an arbitrary and oppressive act which clearly amounted to a breach of contract
committed in bad faith and with malice. In the aforecited case, the Supreme Court
defined bad faith as a breach of a known duty through some motive of interest or ill
will. Self-enrichment or fraternal interest, and not personal ill will, may have been the
motive, but it is malice nevertheless (infra).

As correctly pointed out in the Memorandum for Plaintiffs dated June 18, 1990 (pp. 4-
5), the following excerpt from the testimony of Edgar Mondejar clearly demonstrated
the act of discrimination perpetrated by defendant on the herein plaintiffs (TSN,
Edgar Mondejar, Feb. 28, 1990, pp. 26-28), thus:
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Q Before a plane departs, your office will see to it the plane loads the
exact weight limitation insofar as the cargoes (sic) and passengers
are concerned, is that correct?

A Yes.

Q And so with the PR 101 flight starting mainland USA, it complied

with the weight limitation, passengers and baggages (sic) limitation,
is that correct?

A Yes.

Q In other words the trip from the mainland USA started in Hawaii to
off-load cargoes (sic), you complied with the weight limitation and so
on?

A Yes.

Q But you are saying upon arriving in Honolulu certain containers

were off-loaded?

A Yes.

Q That would be therefore some containers were off-loaded to give

way to some other containers starting from Honolulu towards Manila?

A Yes.

Q In other words Mr. Mondejar, preference was given to cargoes (sic)

newly loaded at Honolulu instead of the cargoes (sic) already from
mainland USA, is that correct?

A Yes.

The aforesaid testimony constituted a clear admission in defendant's evidence of

facts amounting to a breach of contract in bad faith. This being so, defendant must
be held liable in damages for the consequences of its action.  (Corrections indicated
7

in original text.)

The trial court further found that the situation was aggravated by the following incidents: the poor
treatment of the Mirandas by the PAL employees during the stopover at Mactan Airport in Cebu; the
cavalier and dubious response of petitioner's personnel to the Miranda spouses' request to be
billeted at the Cebu Plaza Hotel by denying the same allegedly because it was fully booked, which
claim was belied by the fact that Dr. Miranda was easily able to arrange for accommodations thereat;
and, the PAL employees' negligent, almost malicious, act of sending off the baggage of private
respondents to Surigao City, while they were still in Cebu, without any explanation for this gross
oversight.8

The Court of Appeals affirmed these findings of the trial court by stating that —
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While we recognize an airline's prerogative to off-load baggag(e) to conform with

weight limitations for the purpose of ensuring the safety of passengers, We, however,
cannot sanction the motion (sic) and manner it was carried out in this case.

It is uncontroverted that appellees' baggag(e) were properly weighed and loaded in

the plane when it left San Francisco for Honolulu. When they reached Honolulu, they
were not informed that their baggag(e) would be off-loaded. Ironically, if the purpose
of the off-loading was to conform with the weight limitations, why were other
containers loaded in Honolulu? The real reason was revealed by Edgar Montejar,
baggage service representative of the appellant. . . . 9

xxx xxx xxx

As earlier noted, the off-loading of appellees' baggag(e) was done in bad faith
because it was not really for the purpose of complying with weight limitations but to
give undue preference to newly-loaded baggag(e) in Honolulu. This was followed by
another mishandling of said baggag(e) in the twice-cancelled connecting flight from
Cebu to Surigao. Appellees' sad experience was further aggravated by the
misconduct of appellant's personnel in Cebu, who lied to appellees in denying their
request to be billeted at Cebu Plaza Hotel. 10

The Court has time and again ruled, and it cannot be over-emphasized, that a contract of air
carriage generates a relation attended with a public duty and any discourteous conduct on the part
of a carrier's employee toward a passenger gives the latter an action for damages and, more so,
where there is bad faith.11

It is settled that bad faith must be duly proved and not merely presumed. The existence of bad faith,
being a factual question, and the Supreme Court not being a trier of facts, the findings thereon of the
trial court as well as of the Court of Appeals shall not be disturbed on appeal and are entitled to
great weight and respect.  Said findings are final and conclusive upon the Supreme Court
12

except, inter alia, where the findings of the Court of Appeals and the trial court are contrary to each
other.13

It is evident that the issues raised in this petition are the correctness of the factual findings of the
Court of Appeals of bad faith on the part of petitioner and the award of damages against it. This
Court has consistently held that the findings of the Court of Appeals and the other lower courts are
as a rule binding upon it, subject to certain exceptions created by case law. As nothing in the record
indicates any of such exceptions, the factual conclusions of the appellate court must be affirmed. 14

It is now firmly settled that moral damages are recoverable in suits predicated on breach of a
contract of carriage where it is proved that the carrier was guilty of fraud or bad faith.  Inattention to
15

and lack of care for the interests of its passengers who are entitled to its utmost consideration,
particularly as to their convenience, amount to bad faith which entitles the passenger to an award of
moral damages. What the law considers as bad faith which may furnish the ground for an award of
moral damages would be bad faith in securing the contract and in the execution thereof, as well as in
the enforcement of its terms, or any other kind of deceit.  Such unprofessional and proscribed
16

conduct is attributable to petitioner airline in the case at bar and the adverse doctrinal rule is
accordingly applicable to it.

In Cathay Pacific Airways, Ltd. vs. Court of Appeals, et al., 7 a case which is virtually on all fours with
1

the present controversy, we stated:

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In the case at bar, both the trial court and the appellate court found that CATHAY
was grossly negligent and reckless when it failed to deliver the luggage of petitioner
at the appointed place and time. We agree. . . . While the mere failure of CATHAY to
deliver respondent's luggage at the agreed place and time did not ipso facto amount
to willful misconduct since the luggage was eventually delivered to private
respondent, albeit belatedly, We are persuaded that the employees of CATHAY
acted in bad faith, . . .

. . ., if the defendant airline is shown to have acted fraudulently or in bad faith, the
award of moral and exemplary damages is proper.

It must, of course, be borne in mind that moral damages are not awarded to penalize the defendant
but to compensate the plaintiff for the injuries he may have suffered.  in a contractual or quasi-
18

contractual relationship, exemplary damages, on the other hand, may be awarded only if the
defendant had acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.  Attorney's
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fees in the concept of damages may be awarded where there is a finding of bad faith.  The evidence
20

on record amply sustains, and we correspondingly find, that the awards assessed against petitioner
on the aforestated items of damages are justified and reasonable.

At this juncture, it may also be pointed out that it is PAL's duty to provide assistance to private
respondents and, for that matter, any other passenger similarly inconvenienced due to delay in the
completion of the transport and the receipt of their baggage. Therefore, its unilateral and voluntary
act of providing cash assistance is deemed part of its obligation as an air carrier, and is hardly
anything to rave about. Likewise, arrangements for and verification of requested hotel
accommodations for private respondents could and should have been done by PAL employees
themselves, and not by Dr. Miranda. It was rather patronizing of PAL to make much of the fact that
they allowed Dr. Miranda to use its office telephone in order to get a hotel room.

While it may be true that there was no direct evidence on record of blatant rudeness on the part of
PAL employees towards the Mirandas, the fact that private respondents were practically compelled
to haggle for accommodations, a situation unbefitting persons of their stature, is rather demeaning
and it partakes of discourtesy magnified by PAL's condescending attitude. Moreover, it cannot be
denied that the PAL employees herein concerned were definitely less than candid, to put it mildly,
when they withheld information from private respondents that they could actually be accommodated
in a hotel of their choice.

Indeed, the flamboyant testimony of Oscar Jereza, * as PAL's duty manager, merely pays lip-service
to, without putting into reality, the avowed company policy of invariably making available and always
granting the requests for the kind and standard of accommodations demanded by and appropriate
for its passengers.  Certainly, a more efficient service, and not a lackadaisical and disorganized
21

system, is expected of the nation's flag carrier, especially on an international flight.

For, on the picayune matter of transportation expenses, PAL was obviously and unduly scrimping
even on the small amount to be given to the Mirandas. PAL failed to consider that they were making
arrangements for two paying round-trip passengers, not penny-ante freeloaders, who had been
inconvenienced by the numerous delays in flight services and careless handling of their belongings
by PAL. The niggardly attitude of its personnel in this unfortunate incident, as well as their hair-
splitting attempts at justification, is a disservice to the image which our national airline seeks to
project in its costly advertisements.

We agree with the findings of the lower court that the request of private respondents for monetary
assistance of P300.00 for taxi fare was indeed justified, considering that there were two of them and
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they had several pieces of luggage which had to be ferried between the airport and the hotel. Also,
the request for a small additional sum for tips is equally reasonable since tipping, especially in a first-
rate hotel, is an accepted practice, of which the Court can take judicial notice. This is aside from the
fact that private respondents, having just arrived from an extended trip abroad, had already run out
of Philippine currency, which predicament was exacerbated by their additional stay in Manila due to
the off-loading of their baggage. All these inconveniences should have warranted a commonsensical
and more understanding treatment from PAL, considering that private respondents found
themselves in. this unpleasant situation through no fault of theirs.

2. On its second issue, petitioner avers that the express provisions on private respondents' tickets
stipulating that liability for delay in delivery of baggage shall be limited to US$20.00 per kilo of
baggage delayed, unless the passenger declares a higher valuation, constitutes the contract of
carriage between PAL and private respondents.

It further contends that these express provisions are in compliance with the provisions of the
Warsaw Convention for the Unification of Rules Relating to International Carrier by Air, to which the
Philippines is a signatory. Thereunder, it is asserted that PAL flight PR 101 from San Francisco,
U.S.A., to Manila, Philippines is an "international transportation" well within the coverage of the
Warsaw Convention.

Petitioner obstinately insists on the applicability of the provisions of the Warsaw Convention
regarding the carrier's limited liability since the off-loading was supposedly justified and not attended
by bad faith. Neither was there any claim for loss of baggage as in fact private respondents' baggage
were, albeit delayed, received by them in good condition. 22

The court a quo debunked petitioner's arguments by this holding:

The defense raised by defendant airlines that it can be held liable only under the
terms of the Warsaw Convention (Answer, Special and Affirmative Defenses, dated
October 26, 1988) is of no moment. For it has also been held that Articles 17, 18 and
19 of the Warsaw Convention of 1929 merely declare the air carriers liable for
damages in the cases enumerated therein, if the conditions specified are present.
Neither the provisions of said articles nor others regulate or exclude liability for other
breaches of contract by air carriers (Northwest Airlines, Inc. vs. Nicolas Cuenca, et
al., 14 SCRA 1063). 23

This ruling of the trial court was affirmed by respondent Court of Appeals, thus:

We are not persuaded. Appellees do not seek payment for loss of any baggage.
They are claiming damages arising from the discriminatory off-loading of their
baggag(e). That cannot be limited by the printed conditions in the tickets and
baggage checks. Neither can the Warsaw Convention exclude nor regulate the
liability for other breaches of contract by air carriers. A recognition of the Warsaw
Convention does not preclude the operation of our Civil Code and related laws in
determining the extent of liability of common carriers in breach of contract of
carriage, particularly for willful misconduct of their employees. 24

The congruent finding of both the trial court and respondent court that there was discriminatory off-
loading being a factual question is, as stated earlier, binding upon and can no longer be passed
upon by this Court, especially in view of and in deference to the affirmance of the same by
respondent appellate court.
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There was no error on the part of the Court of Appeals when it refused to apply the provisions of the
Warsaw Convention, for in the words of this Court in the aforequoted Cathay Pacific case:

. . . 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. The Warsaw Convention declares the carrier liable in the enumerated cases
and under certain limitations. However, it must not be construed to preclude the
operation of the Civil Code and 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, especially if willful misconduct on the part of the
carrier's employees is found or established, which is the case before Us. . . .

ACCORDINGLY, finding no reversible error, the challenged judgment of respondent Court of

Appeals is hereby AFFIRMED in toto.