G.R. No.

104235 November 18, 1993

SPOUSES CESAR & SUTHIRA ZALAMEA and LIANA ZALAMEA, petitioners,

vs.
HONORABLE COURT OF APPEALS and TRANSWORLD AIRLINES, INC., respondents.

Sycip, Salazar, Hernandez, Gatmaitan for petitioners.

Quisumbing, Torres & Evangelista for private-respondent.

NOCON, J.:

Disgruntled over TransWorld Airlines, Inc.'s refusal to accommodate them

in TWA Flight 007 departing from New York to Los Angeles on June 6, 1984
despite possession of confirmed tickets, petitioners filed an action for
damages before the Regional Trial Court of Makati, Metro Manila, Branch
145. Advocating petitioner's position, the trial court categorically ruled
that respondent TransWorld Airlines (TWA) breached its contract of
carriage with petitioners and that said breach was "characterized by bad
faith." On appeal, however, the appellate court found that while there was
a breach of contract on respondent TWA's part, there was neither fraud nor
bad faith because under the Code of Federal Regulations by the Civil
Aeronautics Board of the United States of America it is allowed to
overbook flights.

The factual backdrop of the case is as follows:

Petitioners-spouses Cesar C. Zalamea and Suthira Zalamea, and their

daughter, Liana Zalamea, purchased three (3) airline tickets from the
Manila agent of respondent TransWorld Airlines, Inc. for a flight to New
York to Los Angeles on June 6, 1984. The tickets of petitioners-spouses
were purchased at a discount of 75% while that of their daughter was a
full fare ticket. All three tickets represented confirmed reservations.

While in New York, on June 4, 1984, petitioners received notice of the

reconfirmation of their reservations for said flight. On the appointed
date, however, petitioners checked in at 10:00 a.m., an hour earlier than
the scheduled flight at 11:00 a.m. but were placed on the wait-list
because the number of passengers who had checked in before them had
already taken all the seats available on the flight. Liana Zalamea
appeared as the No. 13 on the wait-list while the two other Zalameas were
listed as "No. 34, showing a party of two." Out of the 42 names on the
wait list, the first 22 names were eventually allowed to board the flight
to Los Angeles, including petitioner Cesar Zalamea. The two others, on the
other hand, at No. 34, being ranked lower than 22, were not able to fly.
As it were, those holding full-fare tickets were given first priority
among the wait-listed passengers. Mr. Zalamea, who was holding the full-
fare ticket of his daughter, was allowed to board the plane; while his
wife and daughter, who presented the discounted tickets were denied
boarding. According to Mr. Zalamea, it was only later when he discovered
the he was holding his daughter's full-fare ticket.

Even in the next TWA flight to Los Angeles Mrs. Zalamea and her daughter,
could not be accommodated because it was also fully booked. Thus, they
were constrained to book in another flight and purchased two tickets from
American Airlines at a cost of Nine Hundred Eighteen ($918.00) Dollars.

Upon their arrival in the Philippines, petitioners filed an action for

damages based on breach of contract of air carriage before the Regional
Trial Court of Makati, Metro Manila, Branch 145. As aforesaid, the lower
court ruled in favor of petitioners in its decision 1 dated January 9,
1989 the dispositive portion of which states as follows:

WHEREFORE, judgment is hereby rendered ordering the defendant

to pay plaintiffs the following amounts:

(1) US $918.00, or its peso equivalent at the time of payment

representing the price of the tickets bought by Suthira and
 Liana Zalamea from American Airlines, to enable them to fly to
Los Angeles from New York City;

(2) US $159.49, or its peso equivalent at the time of payment,

representing the price of Suthira Zalamea's ticket for TWA
Flight 007;

(3) Eight Thousand Nine Hundred Thirty-Four Pesos and Fifty

Centavos (P8,934.50, Philippine Currency, representing the
price of Liana Zalamea's ticket for TWA Flight 007,

(4) Two Hundred Fifty Thousand Pesos (P250,000.00), Philippine

Currency, as moral damages for all the plaintiffs'

(5) One Hundred Thousand Pesos (P100,000.00), Philippine

Currency, as and for attorney's fees; and

(6) The costs of suit.

SO ORDERED. 2

On appeal, the respondent Court of Appeals held that moral damages are
recoverable in a damage suit predicated upon a breach of contract of
carriage only where there is fraud or bad faith. Since it is a matter of
record that overbooking of flights is a common and accepted practice of
airlines in the United States and is specifically allowed under the Code
of Federal Regulations by the Civil Aeronautics Board, no fraud nor bad
faith could be imputed on respondent TransWorld Airlines.

Moreover, while respondent TWA was remiss in not informing petitioners

that the flight was overbooked and that even a person with a confirmed
reservation may be denied accommodation on an overbooked flight,
nevertheless it ruled that such omission or negligence cannot under the
circumstances be considered to be so gross as to amount to bad faith.

Finally, it also held that there was no bad faith in placing petitioners
in the wait-list along with forty-eight (48) other passengers where full-
fare first class tickets were given priority over discounted tickets.

The dispositive portion of the decision of respondent Court of

Appeals3 dated October 25, 1991 states as follows:

WHEREFORE, in view of all the foregoing, the decision under

review is hereby MODIFIED in that the award of moral and
exemplary damages to the plaintiffs is eliminated, and the
defendant-appellant is hereby ordered to pay the plaintiff the
following amounts:

(1) US$159.49, or its peso equivalent at the time of the

payment, representing the price of Suthira Zalamea's ticket
for TWA Flight 007;

(2) US$159.49, or its peso equivalent at the time of the

payment, representing the price of Cesar Zalamea's ticket for
TWA Flight 007;

(3) P50,000.00 as and for attorney's fees.

(4) The costs of suit.

SO ORDERED.4

Not satisfied with the decision, petitioners raised the case on petition
for review on certiorari and alleged the following errors committed by the
respondent Court of Appeals, to wit:

I.
 . . . IN HOLDING THAT THERE WAS NO FRAUD OR BAD FAITH ON THE
PART OF RESPONDENT TWA BECAUSE IT HAS A RIGHT TO OVERBOOK
FLIGHTS.

II.

. . . IN ELIMINATING THE AWARD OF EXEMPLARY DAMAGES.

III.

. . . IN NOT ORDERING THE REFUND OF LIANA ZALAMEA'S TWA TICKET

AND PAYMENT FOR THE AMERICAN AIRLINES
TICKETS.5

That there was fraud or bad faith on the part of respondent airline when
it did not allow petitioners to board their flight for Los Angeles in
spite of confirmed tickets cannot be disputed. The U.S. law or regulation
allegedly authorizing overbooking has never been proved. Foreign laws do
not prove themselves nor can the courts take judicial notice of them. Like
any other fact, they must be alleged and proved.6 Written law may be
evidenced by an official publication thereof or by a copy attested by the
officer having the legal custody of the record, or by his deputy, and
accompanied with a certificate that such officer has custody. The
certificate may be made by a secretary of an embassy or legation, consul
general, consul, vice-consul, or consular agent or by any officer in the
foreign service of the Philippines stationed in the foreign country in
which the record is kept, and authenticated by the seal of his office.7

Respondent TWA relied solely on the statement of Ms. Gwendolyn Lather, its
customer service agent, in her deposition dated January 27, 1986 that the
Code of Federal Regulations of the Civil Aeronautics Board allows
overbooking. Aside from said statement, no official publication of said
code was presented as evidence. Thus, respondent court's finding that
overbooking is specifically allowed by the US Code of Federal Regulations
has no basis in fact.

Even if the claimed U.S. Code of Federal Regulations does exist, the same
is not applicable to the case at bar in accordance with the principle
of lex loci contractus which require that the law of the place where the
airline ticket was issued should be applied by the court where the
passengers are residents and nationals of the forum and the ticket is
issued in such State by the defendant airline.8 Since the tickets were
sold and issued in the Philippines, the applicable law in this case would
be Philippine law.

Existing jurisprudence explicitly states that overbooking amounts to bad

faith, entitling the passengers concerned to an award of moral damages.
In Alitalia Airways v. Court of Appeals,9 where passengers with confirmed
bookings were refused carriage on the last minute, this Court held that
when an airline issues a ticket to a passenger confirmed on a particular
flight, on a certain date, a contract of carriage arises, and the
passenger has every right to expect that he would fly on that flight and
on that date. If he does not, then the carrier opens itself to a suit for
breach of contract of carriage. Where an airline had deliberately
overbooked, it took the risk of having to deprive some passengers of their
seats in case all of them would show up for the check in. For the
indignity and inconvenience of being refused a confirmed seat on the last
minute, said passenger is entitled to an award of moral damages.

Similarly, in Korean Airlines Co., Ltd. v. Court of Appeals, 10 where

private respondent was not allowed to board the plane because her seat had
already been given to another passenger even before the allowable period
for passengers to check in had lapsed despite the fact that she had a
confirmed ticket and she had arrived on time, this Court held that
petitioner airline acted in bad faith in violating private respondent's
rights under their contract of carriage and is therefore liable for the
injuries she has sustained as a result.

In fact, existing jurisprudence abounds with rulings where the breach of

contract of carriage amounts to bad faith. In Pan American World Airways,
Inc. v. Intermediate Appellate Court, 11 where a would-be passenger had the
necessary ticket, baggage claim and clearance from immigration all clearly
and unmistakably showing that she was, in fact, included in the passenger
manifest of said flight, and yet was denied accommodation in said flight,
this Court did not hesitate to affirm the lower court's finding awarding
her damages.

A contract to transport passengers is quite different in kind and degree

from any other contractual relation. So ruled this Court in Zulueta v. Pan
American World Airways, Inc. 12 This is so, for a contract of carriage
generates a relation attended with public duty — a duty to provide public
service and convenience to its passengers which must be paramount to self-
interest or enrichment. Thus, it was also held that the switch of planes
from Lockheed 1011 to a smaller Boeing 707 because there were only 138
confirmed economy class passengers who could very well be accommodated in
the smaller planes, thereby sacrificing the comfort of its first class
passengers for the sake of economy, amounts to bad faith. Such inattention
and lack of care for the interest of its passengers who are entitled to
its utmost consideration entitles the passenger to an award of moral
damages. 13

Even on the assumption that overbooking is allowed, respondent TWA is

still guilty of bad faith in not informing its passengers beforehand that
it could breach the contract of carriage even if they have confirmed
tickets if there was overbooking. Respondent TWA should have incorporated
stipulations on overbooking on the tickets issued or to properly inform
its passengers about these policies so that the latter would be prepared
for such eventuality or would have the choice to ride with another
airline.

Respondent TWA contends that Exhibit I, the detached flight coupon upon
which were written the name of the passenger and the points of origin and
destination, contained such a notice. An examination of Exhibit I does not
bear this out. At any rate, said exhibit was not offered for the purpose
of showing the existence of a notice of overbooking but to show that
Exhibit I was used for flight 007 in first class of June 11, 1984 from New
York to Los Angeles.

Moreover, respondent TWA was also guilty of not informing its passengers
of its alleged policy of giving less priority to discounted tickets. While
the petitioners had checked in at the same time, and held confirmed
tickets, yet, only one of them was allowed to board the plane ten minutes
before departure time because the full-fare ticket he was holding was
given priority over discounted tickets. The other two petitioners were
left behind.

It is respondent TWA's position that the practice of overbooking and the

airline system of boarding priorities are reasonable policies, which when
implemented do not amount to bad faith. But the issue raised in this case
is not the reasonableness of said policies but whether or not said
policies were incorporated or deemed written on petitioners' contracts of
carriage. Respondent TWA failed to show that there are provisions to that
effect. Neither did it present any argument of substance to show that
petitioners were duly apprised of the overbooked condition of the flight
or that there is a hierarchy of boarding priorities in booking passengers.
It is evident that petitioners had the right to rely upon the assurance of
respondent TWA, thru its agent in Manila, then in New York, that their
tickets represented confirmed seats without any qualification. The failure
of respondent TWA to so inform them when it could easily have done so
thereby enabling respondent to hold on to them as passengers up to the
last minute amounts to bad faith. Evidently, respondent TWA placed its
self-interest over the rights of petitioners under their contracts of
carriage. Such conscious disregard of petitioners' rights makes respondent
TWA liable for moral damages. To deter breach of contracts by respondent
TWA in similar fashion in the future, we adjudge respondent TWA liable for
exemplary damages, as well.

Petitioners also assail the respondent court's decision not to require the
refund of Liana Zalamea's ticket because the ticket was used by her
father. On this score, we uphold the respondent court. Petitioners had not
shown with certainty that the act of respondent TWA in allowing Mr.
Zalamea to use the ticket of her daughter was due to inadvertence or
deliberate act. Petitioners had also failed to establish that they did not
accede to said agreement. The logical conclusion, therefore, is that both
petitioners and respondent TWA agreed, albeit impliedly, to the course of
action taken.

The respondent court erred, however, in not ordering the refund of the
American Airlines tickets purchased and used by petitioners Suthira and
Liana. The evidence shows that petitioners Suthira and Liana were
constrained to take the American Airlines flight to Los Angeles not
because they "opted not to use their TWA tickets on another TWA flight"
but because respondent TWA could not accommodate them either on the next
TWA flight which was also fully booked. 14 The purchase of the American
Airlines tickets by petitioners Suthira and Liana was the consequence of
respondent TWA's unjustifiable breach of its contracts of carriage with
petitioners. In accordance with Article 2201, New Civil Code, respondent
TWA should, therefore, be responsible for all damages which may be
reasonably attributed to the non-performance of its obligation. In the
previously cited case of Alitalia Airways v. Court of Appeals, 15 this
Court explicitly held that a passenger is entitled to be reimbursed for
the cost of the tickets he had to buy for a flight to another airline.
Thus, instead of simply being refunded for the cost of the unused TWA
tickets, petitioners should be awarded the actual cost of their flight
from New York to Los Angeles. On this score, we differ from the trial
court's ruling which ordered not only the reimbursement of the American
Airlines tickets but also the refund of the unused TWA tickets. To require
both prestations would have enabled petitioners to fly from New York to
Los Angeles without any fare being paid.

The award to petitioners of attorney's fees is also justified under

Article 2208(2) of the Civil Code which allows recovery when the
defendant's act or omission has compelled plaintiff to litigate or to
incur expenses to protect his interest. However, the award for moral
damages and exemplary damages by the trial court is excessive in the light
of the fact that only Suthira and Liana Zalamea were actually "bumped
off." An award of P50,000.00 moral damages and another P50,000.00
exemplary damages would suffice under the circumstances obtaining in the
instant case.

WHEREFORE, the petition is hereby GRANTED and the decision of the

respondent Court of Appeals is hereby MODIFIED to the extent of adjudging
respondent TransWorld Airlines to pay damages to petitioners in the
following amounts, to wit:

(1) US$918.00 or its peso equivalent at the time of payment representing

the price of the tickets bought by Suthira and Liana Zalamea from American
Airlines, to enable them to fly to Los Angeles from New York City;

(2) P50,000.00 as moral damages;

(3) P50,000.00 as exemplary damages;

(4) P50,000.00 as attorney's fees; and

(5) Costs of suit.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.

DIGESTED
Zalamea vs. Court of Appeals 288 SCRA 23 (1993)
FACTS:
Spouses Cesar and Suthira Zalamea, and their daughter, Liana Zalamea, purchased three (3) airline
tickets from the Manila agent of respondent TransWorld Airlines, Inc. (TWA) for a flight from New York to
Los Angeles on June 6, 1984. The tickets of the spouses were
purchased at a discount of 75% while that of their daughter was a full fare ticket. All three tickets
represented confirmed reservations.
While in New York, on June 4, 1984, the spouses Zalamea and their daughter received a notice of
reconfirmation of their reservations for said flight. On the appointed date, however, the spouses Zalamea
and their daughter checked in at 10:00 am, an hour earlier than the scheduled flight at 11:00 am but were
placed on the wait-list because the number of passengers who checked in before tem had already taken
all the seats available on the flight.

Out of the 42 names on the wait-list, the first 22 names were eventually allowed to board the flight to Los
Angeles, including Cesar Zalamea. The two others, on the other hand, being ranked lower than 22, were
not able to fly. As it were, those holding full-fare ticket were given first priority among the wait-listed
passengers. Mr. Zalamea, who was holding the full-fare ticket of his daughter, was allowed to board the
plane; while his wife and daughter, who presented the discounted tickets were denied boarding. Even in
the next TWA flight to Los Angeles, Mrs. Zalamea and her daughter, could not be accommodated
because it was full booked. Thus, they were constrained to book in another flight and purchased two
tickets from American Airlines.

Upon their arrival in the Philippines, the spouses Zalamea filed an action for damages based on breach of
contract of air carriage before the RTC of Makati which rendered a decision in their favor ordering the
TWA to pay the price of the tickets bought from American Airlines together with moral damages and
attorney’s fees. On appeal, the CA held that moral damages are recoverable in a damage suit predicated
upon a breach of contract of carriage only where there is fraud or bad faith. It further stated that since it is
a matter of record that overbooking of flights is a common and accepted practice of airlines in the United
States and is specifically allowed under the Code of Federal Regulations by the Civil Aeronautics Board,
neither fraud nor bad faith could be imputed on TWA.

ISSUE:
Whether or not the CA erred in accepting the finding that overbooking is specifically allowed by the US
Code of Federal Regulations and in holding that there was no fraud or bad faith on the part of TWA ?

HELD:
The CA was in error. There was fraud or bad faith on the part of TWA when it did not allow Mrs. Zalamea
and her daughter to board their flight for Los Angeles in spite of confirmed tickets. The US law or
regulation allegedly authorizing overbooking has never been proved.

1.) Foreign laws do not prove themselves nor can the court take judicial notice of them. Like any other
fact, they must be alleged and proved. Written law may be evidenced by an official publication thereof or
by a copy attested by the officers having legal custody of the record, or by his deputy and accompanied
with a certificate that such officer has custody. The certificate may be made by a secretary of an embassy
or legation, consul-general, consul, vice-consul, or consular agent or by any officer in the foreign service
of the Phil. stationed in the foreign country in which the record is kept and authenticated by the seal of his
office. Here, TWA relied solely on the testimony of its customer service agent in her deposition that the
Code of Federal Regulations of the Civil Aeronautic Board allows overbooking. Aside from said
statement, no official publication of said code was presented as evidence. Thus, the CA’s finding that
overbooking is specifically allowed by the US Code of Federal Regulations has no basis in fact.

"That there was fraud or bad faith on the part of respondent airline when it did not allow petitioners to
board their flight for Los Angeles in spite of confirmed tickets cannot be disputed. The U.S. law or
regulation allegedly authorizing overbooking has never been proved. Foreign laws do not prove
themselves nor can the courts take judicial notice of them. Like any other fact, they must be alleged and
proved. Written law may be evidenced by an official publication thereof or by a copy attested by the officer
having the legal custody of the record, or by his deputy, and accompanied with a certificate that such
officer has custody. The certificate may be made by a secretary of an embassy or legation, consul
general, consul, vice-consul, or consular agent or by any officer in the foreign service of the Philippines
stationed in the foreign country in which the record is kept, and authenticated by the seal of his office.
Respondent TWA relied solely on the statement of Ms. Gwendolyn Lather, its customer service agent, in
her deposition dated January 27, 1986 that the Code of Federal Regulations of the Civil Aeronautics
Board allows overbooking. Aside from said statement, no official publication of said code was presented
as evidence. Thus, respondent court's finding that overbooking is specifically allowed by the US Code of
Federal Regulations has no basis in fact."

"Even if the claimed U.S. Code of Federal Regulations does exist, the same is not applicable to the case
at bar in accordance with the principle of lex loci contractus which require that the law of the place where
the airline ticket was issued should be applied by the court where the passengers are residents and
nationals of the forum and the ticket is issued in such State by the defendant airline. Since the tickets
were sold and issued in the Philippines, the applicable law in this case would be Philippine law."

Other Issues:

2.) Even if the claimed US Code of Federal Regulations does exist, the same is not applicable to the case
at bar in accordance with the principle of lex loci contractus which requires that the law of the place where
the airline ticket was issued should be applied by the court where the passengers are residents and
nationals of the forum and the ticket is issued in such State by the airline.
3.) Existing jurisprudence explicitly states that overbooking amounts to bad faith, entitling the passengers
concerned to an award of moral damages. Where an airline had deliberately overbooked, it took the risk
of having to deprive some passengers of their seats in case all of them would show up for check in. for
the indignity and inconvenience of being refused a confirmed seat on the last minute, said passenger is
entitled to an award of moral damages. This is so, for a contract of carriage generates a relation attended
with public duty --- a duty to provide public service and convenience to its passengers which must be
paramount to self-interest or enrichment. Even on the assumption that overbooking is allowed, TWA is
still guilty of bad faith in not informing its passengers beforehand that it could breach the contract of
carriage even if they have confirmed tickets if there was overbooking. Moreover, TWA was also guilty of
not informing its passengers of its alleged policy of giving less priority to discounted tickets. Evidently,
TWA placed self-interest over the rights of the spouses Zalamea and their daughter under their contract
of carriage. Such conscious disregard make respondent TWA liable for moral damages, and to deter
breach of contracts by TWA in similar fashion in the future, the SC adjudged TWA liable for exemplary
damages, as well.

By: Glenn Quintos Albano