Case Summary (G.R. No. 70462)
Facts of the Case
Rene V. Pangan entered into contracts in San Francisco and Guam for the exhibition of three Filipino films, undertaking to provide promotional and advertising materials on or before May 30, 1978. To fulfill these obligations, Pangan prepared promotional materials and purchased items, which he inserted into two checked luggages. He secured an economy class ticket from Pan Am for travel from Manila to Guam, checked in two luggages containing these materials and personal belongings, but was forced to shift to first class due to overbooking, paying an additional fee. Upon arrival in Guam, his checked luggages were lost, leading to the cancellation of film exhibition contracts. Pangan filed claims for lost baggage and damages against Pan Am.
Trial Court and Intermediate Appellate Court Decisions
The trial court ruled in favor of private respondents, ordering Pan Am to pay actual damages amounting to P83,000 plus interest and attorney’s fees, and additional damages of P8,123.34 to Pangan. The Intermediate Appellate Court affirmed this judgment. Pan Am petitioned the Supreme Court to review the decision, arguing that their liability should be limited by the Warsaw Convention and their contract terms.
Ticket Contractual Provisions and Warsaw Convention Liability Limit
The airplane ticket issued by Pan Am contained a clause referencing the Warsaw Convention’s limitation on liability. It specifically limited liability for lost checked baggage to approximately $9.07 (250 francs) per pound or $20.00 per kilogram unless a higher value was declared and supplementary charges paid. Pangan did not declare any higher value nor pay additional fees for such declaration. The Court noted the contractual clause's conditions were clearly printed on the back of the ticket, invoking the principle that such provisions, as part of the contract of carriage, bind the passenger even without the passenger’s explicit knowledge or signature.
Supreme Court Ruling on Limitation of Liability
The Court stressed that under the Warsaw Convention and binding Philippine precedent (Ong Yiu v. Court of Appeals), the liability of an international air carrier for lost baggage is limited to the amount stated on the ticket unless a higher value is declared in advance with additional charges paid. The Court rejected petitioner Pan Am’s argument that this limitation violated public policy and clarified that prior rulings cited by the appellate court were misapplied or misinterpreted regarding the Convention’s validity in the Philippines. Consequently, Pan Am’s liability for the lost baggage was limited to $600.00 (equivalent to $20 per kilo for 30 kilos), the sum stipulated on the ticket.
Non-Recovery of Lost Profits and Special Damages
The Court declined to uphold the award of damages representing lost profits resulting from the cancellation of the film exhibition contracts in Guam and the USA. Applying Mendoza v. Philippine Airlines, the Court reasserted the rule under Article 1170 of the Civil Code that a carrier is liable only for damages which were foreseen or might have been foreseen at the time the contract was entered into. Since Pan Am was neither aware of the contractual deadlines nor the attendant necessity for timely delivery of promotional materials, special or consequential damages such as lost profits could not be recovered. The Court analogized the case to Chapman vs. Fargo, which similarly denied special damages due to lack of notice to the carrier of special circumstances.
Effect on Award of Attorney’s Fees and Costs
Since the award of attorney’s fees was predicated on an unjustified refusal by petitioner to satisfy a just claim, limiting respondent Pangan’s recovery to the liability cap negated the basis for awarding attorney’s fees. Thus, the Court set aside the attorney’s fees and costs awarded by the lower courts.
Final Disposition
The Supreme Court granted the petition, set aside the decisions of the Intermediate Appellate Court and the trial court, and rendered a
Case Syllabus (G.R. No. 70462)
Parties and Nature of the Case
- Petitioner: Pan American World Airways, Inc. (an international air carrier)
- Respondents: Intermediate Appellate Court, Rene V. Pangan, Sotang Bastos Productions, and Archer Productions
- The case involves petitioner's attempt to limit its liability for lost baggage containing promotional and advertising materials, personal belongings, and other items related to film exhibitions in Guam and the USA.
- Petitioner asserts that liability is limited to the amount specified in the airline ticket unless a higher valuation is declared and additional charges paid.
Factual Background
- On April 25, 1978, Rene V. Pangan, president and general manager of Sotang Bastos and Archer Productions, entered into agreements with Prime Films, San Francisco for the supply of three films for exhibition in the US for $2,500 per picture.
- Pangan verbally agreed with Leo Slutchnick of Hafa Adai Organization in Guam to exhibit two of these films on May 30, 1978, for P7,000 per picture.
- Plaintiffs were to provide promotional and advertising materials for these films on or before May 30, 1978.
- Pangan prepared various promotional materials costing P12,900 and purchased other items including clutch bags, capiz lamps, and barong tagalog valued at P4,400 for his trip.
- On May 18, 1978, Pangan obtained an economy class ticket from Pan Am Manila to Guam (Flight No. 842, May 27, 1978) through a travel agency.
- On May 27, 1978, Pangan checked in two luggages containing the promotional materials and personal belongings but was later informed he was not in the economy class manifest.
- Pangan took first class, paying an additional $112, to be timely in Guam.
- Upon arrival in Guam, Pangan's two luggages did not arrive with him.
- As a result, contracts for the exhibition of the films in Guam and the USA were cancelled.
- Pangan filed claims for the lost luggage and made representations to Pan Am; however, petitioner failed to provide satisfactory response.
Procedural History and Trial Court Rulings
- The trial court found Pan Am liable and rendered judgment ordering payment of:
- P83,000.00 in actual damages with 14% interest from December 6, 1978, plus P10,000.00 attorney’s fees.
- P8,123.34 in additional actual damages with interest.
- Dismissal of Pan Am's counterclaim.
- Payment of costs of suit by Pan Am.
- The Intermediate Appellate Court affirmed the trial court decision.
- Petitioner filed the present petition challenging the ruling.
Petitioner's Assignments of Error
- The appellate court erred in affirming the award of actual damages exceeding liability limits in the Warsaw Convention and the contract of carriage.
- The appellate court erred in awarding alleged lost profits contrary to the ruling in Mendoza v. Philippine Airlines, which limits recovery of special or consequential damages.
Conditions and Liability Stipulated in the Airline Ticket
- The airline ticket included:
- Notice refe