Pan Am v. IAC

PAN AMERICAN WORLD AIRWAYS, INC. v. INTERMEDIATE APPELLATE COURT, RENE V.
PANGAN, SOTANG
BASTOS PRODUCTIONS and ARCHER PRODUCTIONS
FACTS:
 Rene Pangan, president and general manager of Sotang Bastos and Archer Production, entered into two
agreements:
o The first agreement, signed on April 25, 1978, with Primo Quesada of Prime Films, was for the exhibition of
three films in San Francisco, CA at US$2,500 per picture. The three movies were: "Ang Mabait, Masungit at
ang Pangit," "Big Happening with Chikiting and Iking," and "Kambal Dragon." Part of the agreement was
that Sotang Bastos and Archer Production (through Pangan) would be providing the necessary promotional
and advertising materials for said films on or before May 30, 1978.
o The second agreement (verbal agreement) was made in Guam with Leo Slutchnick of the Hafa Adai
Organization. The agreement provided for the exhibition of two of the three films in the previous contract at
the Hafa Adai Theater in Guam on May 30, 1978 at P7,000 per picture. Pangan also undertook to provide
the necessary promotional and advertising materials for said films on or before the exhibition date on May
30, 1978.
 By virtue of the two agreements, Pangan caused the preparation of the required promotional handbills and still
pictures for which he paid the total sum of P12,900.00. In preparation for his trip and to comply with his contracts, he
also bought fourteen clutch bags, four capiz lamps and four barong tagalog, with a total value of P4,400.00.
 On May 18, 1978, Pangan obtained from Pan Am's Manila Office, through a travel agency called Your Travel Guide,
an economy class airplane ticket for passage from Manila to Guam.
 On May 27, 1978, two hours before departure time, Pangan was at the Pan Am's ticket counter at the Manila
International Airport and presented his ticket and checked in his two luggages, for which he was given baggage claim
tickets. The two luggages contained the promotional and advertising materials, the clutch bags, barong tagalog and
his personal belongings.
 Subsequently, Pangan was informed that his name was not in the manifest and so he could not take Flight No. 842 in
the economy class. Since there was no space in the economy class, he took the first class because he wanted to be
on time in Guam to comply with his commitment, paying an additional sum of $112.00.
 Upon arrival in Guam on May 27, Pangan discovered that his luggages did not arrive with his flight. Consequently, his
agreements with Slutchnick and Quesada for the exhibition of the films in Guam and in San Francisco were cancelled
 Upon his return to the Philippines, Pangan contacted his lawyer, who made the necessary representations to protest
as to the treatment which he received from the employees Pan Am and the loss of his two luggages. After Pan Am's
failure to take action, Pangan filed an action for damages against the airline
 CFI: Ordered Pan Am to pay P83,000.00 with interest, for actual damages incurred by Pangan's production
companies; P10,000 for attorney's fees; P8,123.34, for additional actual damages with interest, for damages incurred
by Pangan; and costs of the suit. Pan Am's counterclaim was likewise dismissed.
 IAC: Affirmed CFI ruling.
 Hence, the instant petition.
Issue #1: W/N Pan Am is liable for the value of Pangan's missing luggages beyond the baggage liability limitation
stipulated in the airline ticket? NO.
 The back of the ticket provides a baggage liability limitation clause, which states that:
Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is declared in
advance and additional charges are paid: (1)for most international travel (including domestic portions of
international journeys) to approximately $9.07 per pound ($20.00 per kilo) for checked baggage and $400
per passenger for unchecked baggage: (2) for travel wholly between U.S. points, to $750 per passenger
on most carriers (a few have lower limits). Excess valuation may not be declared on certain types of
valuable articles. Carriers assume no liability for fragile or perishable articles. Further information may be
obtained from the carrier.
 On the basis of such stipulation, Pan Am's liability for the lost baggage of Pangan is limited to $600.00 ($20.00 x 30
kilos) as the latter did not declare a higher value for his baggage and pay the corresponding additional charges.
 Court's ruling in Ong Yiu v. CA is applicable in the present case. "Considering that petitioner had failed to declare a
higher value for his baggage, he cannot be permitted a recovery in excess of [the limited liability of PAL]."
 Court's ruling in Shewaram v. PAL is not applicable in the present case: "The ruling in [Shewaram] was premised on
the finding that the conditions printed at the back of the ticket were so small and hard to read that they would not
warrant the presumption that the passenger was aware of the conditions and that he had freely and fairly agreed
thereto. In the instant case, similar facts that would make the case fall under the exception have not been alleged,
much less shown to exist."
 The IAC also misread SC's ruling in Northwest Airlines, Inc. v. Cuenca: " the Court never intended to, and in fact
never did, rule against the validity of provisions of the Warsaw Convention. Consequently, by no stretch of the
imagination may said quotation (re: the limited liability of Northwest Airlines for lost baggage is against public policy)
from the case be considered as supportive of the appellate court's statement that the provisions of the Warsaw
Convention limited a carrier's liability are against public policy."
Issue #2? Whether Pan Am is liable for the loss of profits sustained by Pangan as a result of the cancelled
agreements. – NO.
 The ruling in Mendoza v. PAL stands: "Under Art.1107 of the Civil Code, a debtor in good faith may be held liable only
for damages that were foreseen or might have been foreseen at the time the contract of transportation was entered
into."
 In the instant case, Pan Am was neither privy to Pangan's agreements nor was its attention called to the condition
requiring delivery of the promotional and advertising materials contained in the luggage on or before May 30, 1978.
 The US case of Chapman v. Fargo, L.R.A. (1918) is in all fours with the present case: In Troy, New York, Chapman
delivered motion picture films to the defendant Fargo, an express company, consigned and to be delivered to him in
Utica. At the time of shipment the attention of the express company was called to the fact that the shipment involved
motion picture films to be exhibited in Utica, and that they should be sent to their destination, rush. There was delay in
their delivery and it was found that Chapman, because of his failure to exhibit the film in Utica due to the delay,
suffered damages or loss of profits. But the highest court in the State of New York refused to award him special
damages. The Court held:
But before defendant could be held to special damages, such as the present alleged loss of profits on account of delay or
failure of delivery, it must have appeared that he had notice at the time of delivery to him of the particular circumstances
attending the shipment, and which probably would lead to such special loss if he defaulted. Or, as the rule has been stated in
another form, in order to purpose on the defaulting party further liability than for damages naturally and directly, i.e., in the
ordinary course of things, arising from a breach of contract, such unusual or extraordinary damages must have been brought
within the contemplation of the parties as the probable result of breach at the time of or prior to contracting. Generally, notice
then of any special circumstances which will show that the damages to be anticipated from a breach would be enhanced has
been held sufficient for this effect.
 As applied in the instant case, in the absence of a showing that Pan Am's attention was called to the special
circumstances requiring prompt delivery of Pangan's luggages, Pan Am cannot be held liable for the cancellation of
Pangan's contracts as it could not have foreseen such an eventuality when it accepted the luggages for transit. In fact,
the evidence reveals that the proximate cause of the cancellation of the contracts was Pangan's failure to deliver the
promotional and advertising materials on the dates agreed upon. For this Pan Am cannot be held liable.
RULING: Petition granted. CA ruling reversed. Pan Am liable for only US$600 as per the baggage liability limitation
stipulated in the airline ticket. Other claims and damages are set aside.

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PAN AMERICAN WORLD AIRWAYS, INC. v. INTERMEDIATE APPELLATE COURT, RENE V.

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